Retirement Income Guide

What is Retirement Decumulation?

What is Retirement Decumulation?

Retirement means a reduced income, but you’ll still have expenses. Decumulation is the process of converting your nest egg into retirement income so that you can live comfortably.

Stephanie Faris

Published April 5th, 2021

Table of Contents

Key Takeaways

  • In the years leading up to retirement, you set money aside and accumulate assets. This is known as the accumulation phase.
  • After retirement, you’ll want to generate retirement income from that nest egg as well as pull back on spending and consider downsizing. This phase is called decumulation.
  • In both phases, careful planning is the key to success.

You spend your working life saving money and collecting assets. You upgrade to a more expensive house and buy newer vehicles. But at some point, you realize you’re heading toward retirement. And at retirement, the accumulation phase typically ends.

Decumulation refers to the process of converting your nest egg savings into income to fund your retirement. Many retirees simultaneously reduce spending so that you can comfortably enjoy your post-working years.

What is Retirement Decumulation?

In the years leading up to retirement, it’s in your best interest to set money aside in retirement accounts to make sure you have enough at retirement. This is known as accumulation. Whether it’s a 401(k), IRA or pension accumulation, you’re gathering and growing for later. Decumulation refers to the process you go through after retirement where you shift your focus to using your retirement assets to generate the income necessary to fund your retirement.

Transitioning from the accumulation phase of retirement planning for the decumulation phase can be complicated. On top of that, it can be mentally challenging for retirees to recognize that they will no longer be receiving a paycheck from work to cover their retirement expenses. The most successful retirees spend time planning and budgeting for how you’ll spend after you retire.

How Does Decumulation Differ From Accumulation?

When you retire, you’ll begin to enjoy the fruits of your labor. But before you start taking distributions from your retirement accounts, you’ll need to stop and think. Your funds in retirement won’t be unlimited, no matter how much you set aside. Social Security benefits typically make up 33 percent of income for older adults. That means you’ll need something to supplement that money you’ll receive each month.

The best decumulation strategies account for the shift from accumulation to decumulation. In accumulation, you’re preparing for retirement by moving extra money into retirement savings accounts. Think of it like a hill you’re climbing so that when you reach the peak, you can coast downhill the rest of the way.

But there are quite a few factors involved in shifting from accumulation to decumulation. Each person’s situation is different, so your decumulation may be different than anyone else’s you know. You might have a part-time job or extra retirement savings that gives you an easier retirement than if you were trying to rely on less money.

In the decumulation phase, it’s also important to remember that retirement funds that remain invested still have the potential to generate growth and/or income. So you’ll actively be in the decumulation phase, but some accumulation can persist.

Transitioning from Accumulation to Decumulation

Now you understand the difference between retirement accumulation and decumulation, there’s some good news. You don’t have to make the switch overnight. For many people, it’s a gradual transition, where you focus on how you will create your retirement income and also consider how to pull back on spending during your final working years.

For some retirees, leaving the workforce isn’t an all-or-nothing proposition. You may cut back on hours in your job, partially retiring before you pull the plug completely. Some seniors prefer to keep a part-time job after retirement, not only to bring extra money in, but also as a fun way to stay active.

But whatever course you choose, at some point you’ll make the financial and mental shift from saving for retirement and upgrading your lifestyle to the decumulation phase. For some retirees, the goal will be to downsize their living situation and hopefully simplifying your life so that you’re spending less.

The first step in making this transition is to shift your mindset. Determine exactly what your monthly income will be and create a budget that stays within that amount. You should also make sure you have a little extra savings that can cover any unexpected emergencies. If you want to travel post-retirement, you’ll also need to factor that into your annual budget.

Things To Consider When Planning For Decumulation

As you approach the end of the accumulation of assets phase, it’s important to keep a close watch on your finances. Here are a few things to consider.

  • Your income will be fixed. You’ll no longer have the possibility of a $10,000 a year raise. Social Security does increase slightly to account for inflation, but that’s not guaranteed.
  • Your life expectancy is uncertain. You could live past the age of 100, or you could hit the current average life expectancy of 78.7 years. Decumulation means striking a balance so that you’re enjoying life while still making sure you have enough to last.
  • Healthcare will be a big expense. You’ll need to shift to Medicare after retirement, which will be a monthly expense. But there will likely also be deductibles and copays that will come out of your bank account. It’s important to account for those in your budget, as well.
  • Costs will rise. As you’re setting a budget, keep in mind that what you spend today for food, housing, and entertainment will not stagnate. Account for rising costs and make sure you’ll be covered 10, 20, or even 30 years from now.

Final Thoughts

To understand the decumulation definition, it’s best to think of it as the opposite of accumulation. In retirement, creating stable income to fund your lifestyle is crucial. One way to assist in that endeavor is to cut back on discretionary expenses and consider downsizing your living situation. Like many things in life, the earlier you start planning offers the opportunity for the best outcomes. No matter where you are in your retirement planning, a Certified Financial Planner® can help you get everything lined up.

Retirement Income Guide



Lifestyle Planning

Income Sources




Free Retirement Consultation

Still have questions about how to properly plan for retirement? Speak with a licensed fiduciary for free.


Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

This website is maintained by Retirable Inc. ("Retirable"). By using this website, you accept our Terms and Conditions and Privacy Policy.

Retirable, Inc. ('Retirable') is an SEC registered investment adviser. By using this website, you accept our Terms of Use and Privacy Policy. Retirable provides holistic retirement planning services, which are available only to residents of the United States. You must be at least 18 years of age to become a Retirable Premium user. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities.

Investing involves risk and past performance is not indicative of future results. Increased spending increases the risk of depleting your savings and performance is not guaranteed. It is very important to do your own analysis before making any decisions based on your own personal circumstances.

Retirable Inc.


Tel: (833) 222-1807


All rights reserved.