Retirement Income Decumulation: The Think Tank

Preparation

The first step in planning the think tank was to seek the guidance and expertise of national retirement experts. On September 7, 2006, in Washington, D.C., NEFE held an eight-person roundtable on the topic of Retirement Income Choices and Decisions. During this meeting, the eight retirement experts identified the decisions that Americans in the target range of $30,000 to $100,000 annual household income would face in retirement. This group of experts believed it was necessary to learn what research tells us, especially with regard to potential rules of thumb on making retirement decisions. The roundtable participants also wanted to address messaging and dissemination strategies that would be valuable, and decided that the upcoming think tank should focus its efforts on issues surrounding decumulation, which is less well known and understood than accumulation.

To directly address what research already tells us regarding guiding principles in retirement decision making, NEFE commissioned an academic literature survey. The Center for Retirement Research at Boston College conducted a review of relevant academic literature that revealed what is known and what is not known about issues surrounding retirement income decumulation. The review incorporated findings from economic research, behavioral finance, and survey data and spanned six “decision zones”—Work, Social Security, Housing, Insurance Products, Defined Benefit Pensions Plans, and Financial Assets (such as Defined Contribution Plans).

These decision zones—defined as the most critical areas of decision-making for retirees—anchored the Think Tank on Retirement Income Decumulation and its preparatory work. Later, NEFE added two more zones dealing with income reducers: Debt and Fraud. The eight decision zones provided a holistic way to completely address retirement income decumulation. The aim of the think tank quickly became this: to explore the decisions that retirees must make, the sequencing of those decisions, what consequences these decisions bear on their financial future and standard of living, and how to prompt behavioral change in retirees to improve their financial well-being throughout retirement.

Because NEFE wanted the research and findings to have as much impact as possible, especially since many retirees in the target audience are unlikely to pay for or use professional advice, a tangible think tank outcome emerged in the form of messages and practical guidelines. Many decisions that are made by retirees have irreversible consequences that alter their financial well-being. Therefore, we found it necessary to develop messages that help demystify retirement income decumulation and help retirees make better choices into their retirement.

Retirement income decumulation is a complex issue with many variables, and it requires some risk analysis. The goal of the think tank was never to identify or advance a particular retirement nest egg size or withdrawal number. Rather, the purpose of the think tank was to take a step back and take a look at the big picture. NEFE identified a need to develop and advance the best general advice, rules of thumb, principles, and messages that will put into context a proper awareness, insight, and action involving the subject of retirement income decumulation.

In other words, by holding the think tank, NEFE wanted to create and gain consensus on a set of messages that Americans need to consider long before determining their own nest egg number or withdrawal rate. These messages are anchored to specific decisions that individuals need to consider in a sequential manner over time. They will help people orient and organize their thinking so that they can approach this series of decisions with the mindset that they have the power and capacity to positively affect their financial well-being by making sound retirement decisions.

Shortly after commissioning the Center for Retirement Research at Boston College to complete the literature survey, NEFE hired a strategic communications firm to guide the messaging effort. Using the research as a guide, they crafted pre-messages and templates, provided a structure to help facilitate breakout groups, and vetted and refined messages as they were interactively developed with the insight and collective knowledge of all think tank participants.

To achieve diversity of thought and the richness of experience, NEFE invited a high-level group of national leaders to provide a unique cross section of expertise in professional positions relevant to each decision zone. Attendees included experts from national financial education associations and foundations, academic institutions, financial services professionals, insurance and securities industries, and the federal government.

The Event

The event, titled Retirement Income Decumulation: Critical Choices and Critical Decisions, was held December 10–12, 2007, in Wellesley, Massachusetts, and generated considerable discussion regarding the best approach to influence better retirement decumulation decisions. Participants agreed on one priority that must be addressed immediately: significantly widen consumer-centric retirement planning and management services for lower- to middle-income households while simultaneously creating new products and services to meet the unique needs of those who are most likely to spend down their limited resources too quickly.

This challenge will not be easy. A senior financial services executive pointed out to think tank participants that his company had tried offering hundreds of pages of free online education and planning information to Middle America. He said that consumers mostly ignored them, despite the company’s highly regarded brand name and considerable promotion efforts.

The challenge of improving retirement decisions has become considerably more complicated given how the global financial crisis may be affecting the psyche and motivations of At-Risk American households. With fearful media stories and policy makers proposing options such as eliminating penalties for early withdrawals from retirement accounts, At-Risk Middle Americans are not just predisposed to make bad decisions—they may perceive that they’re being urged to do so.

At-Risk Middle Americans’ need for a comprehensive understanding of the realities of retirement and the decisions a successful retirement requires has never been greater. But the storm in which retirement guidelines are shouted defies being heard, for the storm is more violent and destructive than ever.

Designed as an actionable event, NEFE’s think tank marked the first step in a long road toward a nationwide collaboration among financial experts, academia, civic leadership, service and product providers, government representatives, mass media, and consumers to create a new awareness about the retirement decumulation challenge and to encourage positive behaviors by those most at risk.

Think tank participants acknowledged the critical outcomes that such a public awareness and social behavioral change campaign must create:

  • Vastly increase the number of At-Risk Middle American households that are prepared to successfully finance their retirement years
  • Avoid a looming national crisis created by millions of Americans who are likely to spend virtually all of their retirement assets with many years of life ahead
  • Acknowledge At-Risk Middle America as a distinct population whose lack of preparation to finance its retirement poses a serious risk to the nation’s economic and social well-being
  • Enhance the understanding of At-Risk Middle Americans to facilitate effective retirement solutions involving government, employers, the financial services industry, educators, mass media, social services, advocacy organizations, and other institutions

At the center of this initiative is the set of messages and practical guidelines that was inspired by the think tank, and shaped through dialog, conference calls, and several revision phases with think tank participants.

Contacts