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Building resilience into your decumulation investment proposition

Retirement planning must be robust to meet the challenges which will be encountered over the next 20 years or more, for a client in decumulation.  It is not possible to predict stock, bond, property returns, inflation or other assets over such a long-time scale, particularly considering the likely occurrence of another black swan event.

Such events were discussed by Nassim Nicholas Taleb in his 2001 book Fooled by Randomness, which concerned financial events.  He noted that it is not that black swan events are rare, but it is their impact, or the damage they do when they occur, that matters. Think Covid 19, although that is not officially a Black Swan event as its was technically predictable.

The practical aim of his book is not to attempt to help us predict events which are unpredictable, but to urge us all to find ways to build robustness against negative events while still exploiting positive events.

As the FCA completes its Assessing Suitability Review 2 (ASR 2) which will focus on the advice that consumers receive around retirement income, there is a groundswell of advice to IFA’s to have in place a Centralised Retirement Proposition (CRP). Although not yet mandatory, a CRP helps to deliver a company wide standard process for advising clients approaching or already in the decumulation phase of their life.

It is recommended that as part of a robust CRP, the risk of a poor series of investment returns, otherwise known as sequence risk, should be explained to a client and then how this risk will be mitigated, with the investment options proposed.

A significant part of the development in pension provision in many countries has been the emergence of ‘Target Date Funds’ or TDFs. Professors Clare from the Cass Business School and colleagues examined the proposition of de-risking through life and the guidance offered by TDFs in the decumulation phase following retirement.[1]

They investigated the withdrawal experience associated with Glidepath Investing in the US since 1925 for conventional bond-equity portfolios.

They found one very powerful conclusion: that smoothing the returns on individual assets by simple absolute momentum or trend following techniques is a potent tool to enhance withdrawal rates, often by as much as 50% per annum! And, perhaps of even greater social relevance is that it removes the ‘left-tail’ of unfortunate withdrawal rate experiences, i.e., the bad luck of a poor sequence of returns early in decumulation.

They showed that diversifying assets over time by switching between an asset and cash in a systematic way is potentially more important for the retirement income experience than diversifying one’s portfolio across asset classes.

[1] Absolute Momentum, Sustainable Withdrawal Rates and Glidepath Investing in US Retirement Portfolios from 1925. Electronic copy available at:

About the author

Geoff Brooks, CEO, Alpha Beta Partners

Geoff has over 30 years’ experience in strategic and leadership roles in major financial institutions in Europe, Asia and the USA; Geoff developed his career as a retirement and investment expert advising and developing drawdown and retirement solutions. His early career started with 4 major life companies NPI, Standard Life, Prudential and Friends Provident. Later to be appointed Head of Retirement for HSBC launching Stakeholder Pensions, DC solutions and drawdown. At the forefront of consumer rights and value for money Geoff led the HSBC customers to contract back into SERPS as the first Life company to do so.

The AB Lifetime portfolio, a diverse, mixed asset growth portfolio has licensed the Professors’ strategy to provide clients with a differentiated investment option for those in and entering the decumulation phase.

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