Decumulation in the Collins English Dictionary is defined as ‘a decrease in amount or value’. In recent years it has really come into focus in our industry particularly when the pension freedoms were introduced, and it became possible to simply drain a pension fund in its entirety.
In the not too distant past at retirement most people simply purchased an annuity and had a set level of income payable to then for the rest of their lives, this may have included inflation proofing or a spouses pension but the decisions around how and when to take income ceased when the annuity was purchased. In our world now we see decumulation as a strategy to meet the income needs of families we work with and to do this with risk, liquidity and tax all in mind.
Last week Ben talked about the recent market volatility and how irrational markets can act, particularly in the short term. For reasons like this it is even more imperative to have a solid decumulation strategy in place.
Every quarter we sit down and review client liquidity to make sure they have sufficient cash in place to cover upcoming withdrawals from their portfolios. At our most recent meetings, all of which are minuted and added to the client’s portal, I took a call from one of my clients about the extra cash we were raising. Our reasoning was that we wanted to be prudent and add a little more now as markets had been good and we were sitting on some profits, we weren’t adding too much but did want to top up the cash figures to ensure we never have to be forced sellers. In the days and weeks that followed the volatility Ben talked about last week hit and when I caught up with the client again it was really pleasing to hear how they were pleased with what we had done in hindsight and that they could simply ‘wait out’ the short-term dips.
At our August webinar we plan to talk more in depth about our decumulation strategy and how it works. In our industry most of the people I come across only talk about accumulation as they see this as the wins that keep them in business. This couldn’t be further from the truth for us as the planning and input into the later lifecycles and managing this is a huge part of the work we do with clients. Keeping this flexible and continuing to evolve the strategy will continue to be a key theme for our business.
It is never too late to start building a decumulation strategy and if you haven’t given this any thought as yet please do get in touch and we will happily talk you through some of our ideas.
Thanks for reading and