Shock (Not)! 401k Participants Need Help With ‘Decumulation’ Strategies

Cerulli posed the following questions to 401k plan participants age 45 and older

401k, withdraw, decumulation, cerulliHow do we ensure the assets last?

Recent research highlights participant perspectives on the topic of decumulation, and reveals that many need guidance with what to do with their proverbial “pile of money” at retirement.

“Since its inception in the early 1980s, the 401k-plan industry has devoted most, if not all, of its energy and resources into solving for the accumulation component of the retirement savings equation,” according to Cerulli Associates.

While there’s still more work to be done on this front, the global research and consulting firm notes the industry is slowly turning its attention to addressing the second half of the retirement equation.

In recognition of the industry’s increased willingness to engage on the topic of decumulation, Cerulli posed the following question to 401k plan participants age 45 and older:

“When you retire, what do you plan to do with your savings?”

Results show that “participants are generally clueless as to what they will do with their accumulated savings,” Jessica Sclafani, director at Cerulli, said in a statement.

One-quarter of respondents explicitly answered, “I don’t know (what I will do with my 401k account savings),” and another one-quarter say they “will ask my existing financial advisor for advice.”

“The latter data point can be read as a marginally more prepared version of ‘I don’t know,’ which, in sum, suggests that half of 401k plan participants have no idea what to do with the savings they have diligently set aside for retirement,” Sclafani continued, citing specific survey data. “Also, another 8.5 percent of respondents point to ‘I will hire a financial advisor to help me.'”

Cerulli suggested that 401k advisors, consultants and plan providers work closely with plan sponsors to identify the sponsor’s preferences for retaining the assets of retired participants in the plan and ensure these preferences are reflected in the plan’s available distribution options (e.g., single lump-sum, installment payment program or “SWP,” partial withdrawals, and in-plan annuities).

“Furthermore, this data underscores the important role of advisors in supporting a thoughtful and sustainable drawdown strategy,” Sclafani concluded, “as there is clearly demand for withdrawal advice from individuals.”

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