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What Were Participants Thinking, Anyway? Decumulation Behavior

By Jack Towarnicky

An ever-increasing number of participants may not be thinking about what to do with their 401(k) assets after they retire – they may procrastinate, leave assets in the plan, and never make a decumulation decision!1

Join Suzanne Shu, associate professor of marketing at UCLA, at PSCA’s 2019 National Conference, April 30-May 1 in Tampa, FL as she explores the behavioral aspects of retirement income decision-making.

I led hundreds of pre-retirement planning seminars for thousands of older workers and their spouses during the period 1985-2002. Attendees were ages 50-64 where most would retire after completing 15, 20, 25 or more years of service. The session included a variety of topics and presenters – we even had some retirees return to share their own retirement experience. Looking back, I wonder what insights they gained – whether we helped improve their decision-making, or perhaps, whether multiple presentations over the better part of two days simply overwhelmed or washed over them. Evaluations, reactions, and feedback were favorable, yet modest.

While more than one presenter focused on living and decision-making during retirement years, we never attempted to address the psychology involved in peri-retirement financial decision-making. We talked about the different annuity payout options from the DB plan (no lump sum option). We discussed the Social Security choices – commence at 62, 65, or 70, spousal benefits, etc.

Today, I occasionally meet retirees who attended. They seem happy with the choices they made. Well, at least no one complains to my face.

When it came to the retirement savings discussion at the seminar, the No. 1 response was always: “I wish you had told me that 20 years ago.” Unfortunately, we had. Saving for retirement wasn’t as much of a priority among 30-somethings in the 1960s and 1970s. My predecessor’s 401(k) presentation was all about payouts. He laid out a full comparison of IRA rollovers and lump sum, 10-year forward tax averaging. You could sum it up as: “Achieve the best result, after taxes.”

I stepped into his shoes at my first such retirement seminar, Oct. 31-Nov. 1, 1985. Back then, due to the combination of high interest rates and complex tax decisions, the payout decision was extra complex. Our plan only offered a lump sum – no partial payments, no installments. At separation, you could roll it over to an IRA (and invest it, or purchase an annuity) or you could elect lump sum tax averaging. Not ready to make a decision? Defer and continue to accumulate tax-deferred up until age 70 ½ – then choose what to do with your lump sum.

However, the decisions had already been radically changed by legislation, the curtailment of favorable tax averaging, the recent stock market recovery, and the continued moderation of interest rates from double-digit levels earlier that decade.2 Throughout the next two decades, that presentation evolved as plan provisions evolved, prompting major changes in participant behavior as well. In 1985, everyone took a lump sum and cashed out. Today, almost one-third of all plan assets belong to term vested/retired participants. Some continue participation because they recognize the value of that 401(k) plan as a lifetime financial instrument – assets are retained at separation followed by direct deposited, minimum required distributions starting on the required beginning date and continuing for the rest of the participant’s life and that of her surviving spouse. Others continue participation because they are inert.

Studies show a significant minority of retirees focus on managing their regular expenses so that they do not exceed income. These families minimize spending assets and withdraw only the required minimum distribution from tax-deferred retirement accounts. They are also reluctant to use home equity to help finance retirement. They may use assets to meet a major, unexpected expense. Bottom line, most of the people older than age 85 seemed to adapt reasonably well to changing circumstances. Some expressed regrets, but overall, they are reasonably satisfied. Finally, many of the very old are frugal, yet they seem to feel fine about it. They have accepted their situation and manage within its constraints.3

Workers continue to tell us about their biggest fears, that: “I will outlive my savings/investments,” “Social Security will be reduced or cease to exist in the future,” or “declining health will require long-term care.”4

The past is not prologue! Almost everyone expects to see significant change due to legislation, market volatility, ever-increasing national debt, funding challenges for Social Security and Medicare, the erosion of traditional defined benefit pension plans as a source of income in retirement, etc. How will your participants respond?

Come learn what participants are thinking when it comes to retirement income decision-making. Professor Shu will highlight how the framing of life expectation questions, individual differences in patience and loss aversion, and personal beliefs about perceived fairness of annuities and/or ownership of SSA contributions all provide important psychological inputs to retirees’ decisions.

See you in Tampa.

1A. Tergesen, You’re Ready to Retire. But Should Your 401(k) Keep Working? Employers are amending rules and offering services to keep retiree money in company-sponsored plans. Wall Street Journal, 3/7/19, Accessed 3/25/19 at:
21 Retirement Equity Act of 1984, Pub. L. 98-397, 8/23/84. My plan opted to comply by removing the annuity payout option. Tax Reform Act of 1986, Pub. L. 99–514, October 22, 1986; See also: D. J. Marotta, Volker’s Bear: The Bear market of 1982, 10/11/17, Accessed 3/25/19 at:
3Society of Actuaries, Post-Retirement Experiences of Individuals 85+ Years Old, May 2018, Accessed 3/25/18 at:
418th Annual Transamerica Retirement Survey: A Compendium of Findings About American Workers, June 2018, Accessed 3/25/18 at:

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