From Morningstar: 2024-10-15 11:06:00

Many still focus on risk and return in retirement, but should think about income. National Institute on Aging study highlights the shift to a decumulation mindset. The retirement industry influences this with state pensions, workplace pensions, and private savings leading to a focus on building, not drawing down, income.

Retirees are encouraged to think of savings as investments for lifelong consumption, not just short-term risk and return. Shifting focus to monthly income over savings balance is crucial for financial well-being. Visualizing retirement as a bungalow with income streams and spending areas can help in planning for ongoing and non-routine expenses.

Reframing retirement from an investment to a consumption framework can lead to increased preference for guaranteed income sources. This can also open up considerations for home equity as an income stream. By layering portfolios with conservative assets for steady income and riskier assets for higher returns, retirees can secure their financial future and avoid making hasty financial decisions.

Thinking solely about investment risks can lead to poor choices in retirement planning, like choosing a lump sum over steady lifetime income. Without a solid retirement plan, individuals risk either overspending savings early or leaving a large sum behind. Shifting focus to income generation can prevent such financial pitfalls and lead to more sustainable retirement planning strategies.



Read more at Morningstar: Reframing Retirement Savings: Shifting from…