As the defined contribution (DC) industry recognizes the need to shift its focus from accumulation to more
holistic strategies designed to provide lifetime income, the challenge of portfolio decumulation and providing
sustainable income through retirement needs to be thoughtfully addressed. In doing so, having a strong
understanding of the retirement spending objectives for workers is the critical component.
Historically, most investment solutions have been designed under the assumption that retirement spending is
the same for all individuals, but the reality is the characteristics of retiree expenses vary greatly. For solutions
to be successful in providing retirement income, they will need to better address the different types of spending
workers will experience after they leave the workforce.
We believe plan sponsors should evolve their DC plans to be more supportive of lifetime income, including more
outcome-focused asset allocation, technology customized to the individual, institutional investments including
non-guaranteed liability-driven investments, and guaranteed income solutions.
In this paper, we focus onbetter understanding expenses in retirement and discuss the idea of using a “Needs and Wants” framework for
designing income-oriented investment solutions. It is our view that this type of approach to how spending in
retirement is viewed may be able to provide better solutions and outcomes for workers.