Don’t have a retirement withdrawal strategy? You aren’t alone.

What is decumulation and why does it matter?

Decumulation simply means using a retirement withdrawal strategy to provide a stream of reliable income that’ll last throughout retirement.

In the past, many retirees relied on pensions that provided guaranteed income for life. Today, most people retire with 401(k)s, IRAs and other savings accounts. This shift means retirees are now responsible for deciding:

• How much to withdraw

• When to withdraw it

• Which accounts to use

• How long the money needs to last

Despite the importance of these decisions, the survey shows just 19% of retirees and 27% of near retirees recognize the term “decumulation.” About 40% say they have no plan for how they’ll spend down their savings.

Without a plan to guide them, retirees are often afraid to spend, fearing they won’t have enough money to cover big, unpredictable expenses, such as health care or housing.

Confidence in Social Security waning

The survey shows 91% of respondents expect Social Security benefits to be part of their income stream in retirement — 96% of retirees rely on it already and 80% of those nearing retirement expect to.

While most say Social Security is or will be an important part of their retirement income strategy, confidence that it’ll cover essential expenses remains relatively low. Just 17% of the survey population say they’re very or extremely confident their Social Security benefits will be enough to cover their needs.

“I don’t want to rely on Social Security alone ... also health issues could be very costly later on,” said one retired male respondent with between $100,000 and $250,000 in investable assets.

Understanding your retirement needs

No one knows exactly how long they’ll live, which makes retirement planning tricky.

That uncertainty causes many retirees to underspend, even when they can afford to spend more.

Nate Hobson, national sales director of Mutual of Omaha’s advisor network and a financial advisor, recommends building a plan that isn’t based on living to a specific age. Instead, it’s more important to prepare for a range of possibilities.

People make the common mistake of building a retirement plan based on average life expectancy. Considering half of all people live longer than the average, that strategy can lead to problems. A safer approach is to plan as if you might live into your late 80s or 90s and make sure your strategy would continue to work if you lived even longer.

“You really never know how long you’ll live,” said one female respondent who has saved between $100,000 and $250,000 in investable assets. “Also, nobody can predict what large expenses will come up in the future.”

Many personal factors, such as family health history, current health, lifestyle and access to quality health care all play a role in how long a person can expect to live.

On top of preparing for a long life, those nearing retirement should also plan for a longer retirement in case they leave the workplace earlier than expected.

Of the retirees surveyed, 53% say they retired a little or much earlier than expected. The results show a significant difference when further broken down by gender: 56% of women say they retired earlier than they’d expected compared to 47% of men.

The impact of inflation

Inflation is another factor that has retirees fretting about overspending. As prices rise, the purchasing power of their savings declines. Among survey respondents, 60% are concerned about the impact of inflation.

To help ease those worries, Mutual of Omaha financial advisor Adam Olson, a Certified Financial Planner, recommends separating needs from wants when planning for inflation. It’s wise to assume the costs of core needs — food, shelter, clothing, taxes, health care and insurance — will increase at least 3% a year throughout retirement, he said.

Wants, such as travel and leisure, are handled differently. Spending on these luxuries typically peaks early in retirement and gradually declines later in life.

“We strategically plan for lower spending on wants in the mid-70s and mid-80s,” Olson said. “That creates a more realistic long-term plan.”

“It’s important to remember retirement plans should never be set in stone, Hobson said. Markets experience volatility. Health and goals change. Taxes increase. Reviewing your plan regularly provides opportunities to adjust spending, savings or investments before factors outside your control cut into your savings.”

How much can you safely spend in retirement?

Because retirement looks different for everyone, there isn’t a one-size-fits-all answer to how much or when to start spending during retirement. The numbers reveal people are cautious about spending right away.

Just 22% of retirees say they started spending immediately and 35% say they’ll only spend if absolutely necessary.

When it comes to how much to spend, the 4% rule of withdrawal has long been a popular spending strategy. Using this approach, a retiree withdraws 4% of their retirement savings in their first year and then adjusts for inflation in subsequent years.

While the rule has merit, Zagurski warns spending plans require much more flexibility to accommodate the unexpected.

“The 4% rule can be a helpful starting point, but it was never meant to be a one-size-fits-all solution,” Zagurski said. “Real life is more dynamic. Spending patterns, market conditions, taxes and health all matter. Today, most retirees benefit from a more personalized, flexible approach.”