Your Money Map Replay: Decumulation Demystified with Christine Benz and David Blanchett
HerMoney with Jean Chatzky
Deep Dive
Why is decumulation considered the most complicated problem in financial planning?
Decumulation involves determining how much you can safely spend each year over an unknowable time horizon, with uncertainties about lifespan and portfolio performance. It also requires transitioning from a saving mindset to a spending mindset, which many lifelong savers struggle with.
What percentage of American retirees report that spending down their savings is taking an emotional toll?
46% of American retirees say spending down their savings is causing emotional stress.
Why do lifelong savers often find it difficult to spend their retirement savings?
Lifelong savers have developed a strong identity around saving and often feel guilty about spending their hard-earned money. This psychological barrier makes it challenging to transition to a spending mindset in retirement.
What role do annuities play in retirement planning according to David Blanchett?
Annuities can provide guaranteed lifetime income, which helps retirees feel more secure and comfortable spending their savings. David suggests that everyone should have their essential expenses covered by lifetime income, which could include Social Security or annuities.
What is the average withdrawal rate from retirement portfolios for a 65-year-old married couple, according to David Blanchett?
The average withdrawal rate for a 65-year-old married couple is 2% or less, which is well below the commonly suggested 4% rule.
What does Christine Benz suggest as a way to maximize happiness in retirement spending?
Christine recommends creating a vision for retirement that includes both purposeful activities and leisure. She suggests using discretionary spending pots for activities like travel, allowing retirees to enjoy their savings without guilt.
What controversial idea does David Blanchett propose regarding employer contributions in 401(k) plans?
David suggests that all employer contributions should be annuitized, creating a guaranteed stream of income for retirees. This would help mitigate the anxiety around spending down personal savings.
How does Christine Benz think guaranteed income can help with retirement anxiety?
Guaranteed income, such as Social Security or annuities, can cover fixed expenses, providing peace of mind and allowing retirees to maintain a more aggressive investment portfolio. This reduces the need to withdraw from fluctuating assets during market downturns.
What advice does David Blanchett give for those approaching retirement without a financial advisor?
David advises getting help from a qualified financial advisor, especially when approaching retirement. He believes that having a second set of eyes on your plan is invaluable for making irrevocable decisions.
What does Christine Benz recommend to address long-term care costs in retirement planning?
Christine suggests creating a plan for long-term care costs by determining whether you will self-fund, rely on government care, or consider insurance. This helps alleviate anxiety about potential catastrophic expenses later in life.
- 46% of American retirees find spending down savings emotionally taxing
- Decumulation is the process of spending retirement savings
- Defined contribution plans increase retirement anxiety due to complexity and personal responsibility
Shownotes Transcript