Nearly half of retirees lack a structured decumulation strategy

Pittsburgh, PA, December 3, 2024 – A new survey sheds light on the challenges retirees encounter in managing withdrawals from their retirement savings—a process known as decumulation. Findings indicate that a significant number of retirees navigate this phase without a structured plan, choosing to withdraw funds as needs arise rather than following a consistent decumulation strategy. In contrast, only about one-quarter of respondents reported using a systematic approach, drawing down their savings based on a fixed annual percentage.

The survey was commissioned by IRALOGIX, and was conducted in late October 2024.

“This approach runs counter to a process that emphasizes sustainable withdrawal rates, spreading savings out over the long term to extend them throughout retirement,” said Peter J. de Silva, CEO of IRALOGIX. “It points to a more instinctive, in-the-moment decision-making style, which could have significant long-term financial consequences. Optimally, retirees should have a more balanced approach, one that allows for some leeway but also safeguards long-term financial security by placing limitations around monthly savings withdrawals.”

Key findings:

• 49% of retirees forego a formal withdrawal strategy, opting to take what they need as they go. 22% draw down their savings using a systematic process based on a fixed annual percentage; 17% spend only dividends and interest.

• 53% adjust their withdrawal strategies based only on changes in their personal lives or don’t make any adjustments at all.

• 46% say their 401(k) provider offered minimal or no resources on decumulation strategies as they approached retirement.

• 44% say inflation has minimal to no impact on their savings withdrawals. 31% note that inflation has some impact, but they haven’t made any major adjustments. 24% say inflation has a significant impact on their withdrawal strategies and they make adjustments based on it.

• 32% say the biggest challenge in managing their retirement withdrawals is understanding all of the options available; 20% cite planning for healthcare or other unexpected costs; 20% say deciding how much to withdraw annually; 17% note managing taxes on their withdrawals.

• 29% don’t have a strategy for adjusting their spending based on market performance, saying they don’t pay attention to how the market is doing; 24% stick to a fixed withdrawal rate regardless of market performance; 23% only adjust their spending under extreme market conditions; 23% adjust their withdrawals based on market performance.

Other takeaways

• 53% of respondents tap Social Security before any other sources of savings or income. Other primary sources include pensions,19%, and 401(k) accounts and savings at 8% each.
• 39% say healthcare costs don’t play a significant role in their withdrawal strategies while 37% note it is a significant or minimal factor.
• 32% say taxes play some role, but are not a major focus, in their savings withdrawal strategies. 28% cite taxes as having a significant role, and 18% haven’t considered taxes in their withdrawal plans.
• 31% maintain a 6-12-month cash reserve cushion to meet unexpected expenses; 29% keep more than 12 months; 25% don’t maintain a cushion.
• 30% don’t plan to change their spending patterns as they age and will keep their spending consistent throughout; 23% will increase their spending as healthcare needs arise; and 18% will increase their spending earlier in retirement, then decrease it later.
• 28% withdraw less than 3% annually to support their lifestyle; 13% withdraw 4-5%; and 11% tap 5-6%.

"The findings show that while flexibility is valuable, there’s a clear need for guidance to help retirees navigate the complexities of decumulation," said de Silva. "For many, the challenge isn’t just about deciding how much to withdraw, but also understanding the impact of taxes, healthcare costs, inflation, and unanticipated expenses on retirement savings. By making informed choices, retirees can feel more secure in managing both the expected and unexpected in retirement."

 Methodology

The survey was conducted online in late October 2024 on behalf of IRALOGIX. Respondents, who skewed 52% female to 48% male, were drawn from a national sample of retirees with household incomes of $0 - $200,000-plus.