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The Retirement Plan Solution: The Reinvention of Defined Contribution by Matthew X. Smith, Bob Collie, Don Ezra

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Part V. The Perspective of the Individual in Decumulation

Having looked at the question of retirement planning—and in particular the accumulation of assets during a working lifetime—from the perspective of the system, we now turn to the postretirement period and to a different perspective: that of the individual retiree. This change of perspective is necessary because the role of the individual is different and harder to manage after retirement. Throughout this book so far, we have taken the view that during the savings phase the needs of the many are best met by a system built around sensible, efficient default paths. If an employer has a defined contribution (DC) plan, then workers should (as a general rule) be put into that plan unless they actively elect not to participate. Unless they specify otherwise, their retirement assets should be in a growth-oriented strategy (even though that runs the risk of losses over some time periods), which gradually changes over time to reduce risk as the assets grow because that offers the most likelihood of competitive long-term returns. And so on. In short, employers should bake sound investment accumulation practices into their plan design.

But in the postretirement period, the link between the participants and the employer is substantially weaker: They no longer work for the firm. Plan sponsors have therefore traditionally paid much less attention to plan design features that affect the decumulation phase than to the features that affect ...

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