Mercer Examines Retirement Spend-Down Phase

September 22, 2010 ( – The post-retirement spend-down segment of retirement planning is experiencing a wave of innovations, according to a new collection of articles released by Mercer.

A Mercer news release said this trend comes as governments, providers, social partners, and plan sponsors scramble to meet the needs of the first cohort of retirees who will rely primarily on defined contribution (DC) plans for retirement income.

The articles take a look at this aspect of retirement planning in articles penned by Mercer consultants including:

  • Design for the future: DC spend-down strategy (Bob Moreen, Philadelphia)
  • Distribution options in the U.S. (Betsy Dill, Los Angeles)
  • Spend-down products: A Canadian perspective and experiences (Oma Sharma, Toronto)
  • Annuities market in the U.K.: Is help on the way? (Andy Parker, London)
  • Optimizing retirement: Spend-down modeling – In search of the silver bullet (Darren Wickham, Sydney)
  • Singapore’s CPF LIFE: An in-depth look (Ben Facer, Singapore)
  • Spend down: The final frontier (Neil Lloyd, Vancouver)

“With the imminent wave of baby boomer retirements about to occur, sponsors, policymakers, and fiduciaries of DC plans are spending considerable time and energy trying to develop, or at least understand, the optimal post-retirement solution,” said Wickham, a Principal and Actuary in Mercer’s Retirement, Risk & Finance business in Sydney, Australia.

A Spend-Down Model 

Mercer said its spend-down models (described in an article in the collection) are designed to help sponsors evaluate retiree returns in terms of real income over a lifetime, risks of strategies, the impact of the retiree leaving a bequest, and retiree risk preference and behavioral biases. The goal, according to Wickham, is to allow sponsors and others to:

  • Choose among different product providers;
  • Compare complex fee structures;
  • Compare different classes of products;
  • Design default strategies (possibly involving a mix of different classes of products);
  • Satisfy regulatory requirements (about default strategies);
  • Communicate, highlighting advantages to employees if they end up paying institutional fees rather than retail fees.

“The spend-down phase is in many ways the ‘final frontier’ of DC plan provision,” wrote Neil Lloyd, a Senior Consultant in Mercer’s Investment Consulting business in Vancouver. “It is certainly an area where regulators have concern, and employers are wary of stepping into the breach. But ultimately, the spend-down phase is most important to those people who are retiring from DC plans and who are now trying to decide what to do with their accumulated retirement assets.…If the past 10 years tracked the emergence of lifecycle/target-date funds in DC plans, the next 10 years will undoubtedly focus on the spend-down phase.”

More information is at