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Decumulation Strategies Can Fail

Typical strategies for drawing down one's life savings in retirement fail badly when confronted with a worst-case investment scenario, says Fred Vettese, chief actuary at Morneau Shepell. "Most people believe that Canada/Quebec Pension Plan payments should start immediately, that annuities are unattractive in this low-interest environment, and that total pension income needs to rise with inflation every year," explains Vettese. "Our worst-case investment scenario shows that such an approach leads to ruin." The problem is that most retirees are unlikely to stumble on the optimal strategy on their own, so the sponsors of defined contribution pension plans could do more to help at the point of retirement. He also notes that it is not entirely the plan sponsor's fault for not helping more. "In most provinces, including Ontario, the regulations that would permit an intelligent decumulation strategy from a DC pension plan are not yet fully in place. The time has come to take action," says Vettese.

Courtesy of Benefits and Pensions Monitor website News Alerts 



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