Why decumulation is useful as a retirement strategy
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Why decumulation is useful as a retirement strategy

Jun 2023
Jul 2022
retirement assets - decumulate amid inflation

Most of us are well aware of the importance of saving and investing to build our wealth for retirement, and some already have a sound financial plan.

But we rarely plan how to draw down those funds when we retire.

What is decumulation, and why is it important?

Decumulation is when we convert the assets that we have accumulated during our working years into an income stream for retirement.

When it comes to decumulation, the majority of people may be concerned about potentially outliving our retirement funds.

The global population is generally living longer, thanks to advances in medicine and technology.

Singaporeans’ life expectancy is among the highest in the world, at 80.7 years for men and 85.2 years for women in 2022. That suggests the average Singaporean will need to have enough retirement funds to last some 18 to 22 years after the retirement age of 63.

Having a decumulation plan in place can provide us with financial security and peace of mind so that we can live better and enjoy our golden years.

Decumulation is difficult if we don’t start earlier

Amid high inflation, more Singaporeans are now concerned that they may not have sufficient funds for retirement, as compared to a year ago, our latest Endowus Retirement Report found. The middle-income households are signalling a greater loss of confidence than before.

There are also several behavioural biases among retirees that could result in poor financial outcomes. A PIMCO research study found overconfidence, loss aversion bias, and health-related anxieties among investors, which would hinder the decumulation stage of retirement.

For example, over half of the respondents either had no plan or planned to ignore their assets completely in their retirement. Despite this lack of planning, 83% of them were highly confident about their ability to meet their retirement spending needs. 

Investors may feel such confidence because they have already successfully grown their investment portfolios as accumulators. But, as PIMCO pointed out, successful accumulation does not guarantee a successful decumulation.

Its research team also found that loss-averse investors perceive market movements with strong emotions, which can lead them to impulsive and suboptimal decisions such as shifting to lower-risk allocations during steep market declines.

Moreover, anxieties around one’s health prompted some retirees to save more as a precaution while slowing their withdrawal rates of assets in mid-late retirement.

How to decumulate wisely in retirement

Therefore, even before we retire, it is critical that we start planning for our retirement goals and spending needs, as well as how we can maximise the income potential of our savings and Central Provident Fund (CPF).

To begin, identify your retirement needs and categorise them into discretionary and non-discretionary expenses. 

Aggregate all sources of potential income — both guaranteed, such as CPF LIFE monthly payouts or private annuity plans, and non-guaranteed ones like dividends from equity investments. 

Next, decide on your risk tolerance and manage the trade-offs between income and capital growth among the assets in your investment portfolio. 

Track the cash inflows and outflows, as well as the portfolio performance. Maintain a flexible plan to address unforeseen life events and expenses.

The longer you wait to put together and execute a decumulation strategy, the shorter the runway you have to balance between maintaining an adequate standard of living and preserving enough assets to sustain your entire retirement period.  

It is also important to note that your portfolio will need regular reviews and realignments with your current and expected circumstances. 

How will higher inflation affect decumulation strategies?

The elevated inflationary pressures in 2022 and 2023 have been chipping away at real investment returns and thus slowing the accumulation of assets. 

This makes it tougher for investors to maximise the value of their retirement savings to attain their preferred standard of living, and may disrupt their existing decumulation plan if they do not accumulate their expected amount of assets by the time they retire.

As a result, some individuals could decide to delay retirement, lower their standards of living, or find alternate sources of income, such as taking up part-time jobs if their physical health allows for it.

The key to tackling these challenges lies in planning for retirement early. Set a clear savings plan during your working years, invest early to let your money work for you through the power of compounding, and actively monitor and reassess your decumulation strategy to stay ahead of the economic and market conditions. 

Learn more about preparing for retirement despite higher inflation with the 4% rule.

Explore your income-building options with the Endowus Income Portfolios, or find out more about how you can build passive income. To get started with Endowus, click here.

Next on the Endowus Fin.Lit Academy

Read the next article in the curriculum: Retiring with a bucketing strategy


This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endow.us Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance.

Please note that the above information does not purport to be all-inclusive or to contain all the information that you may need in order to make an informed decision. The information contained herein is not intended, and should not be construed, as legal, tax, regulatory, accounting or financial advice.

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