Retirement Decumulation 101: Help Employees Turn Savings into Steady Income

Quick look: Decumulation is all about turning retirement savings into a steady flow of income that lasts. This can be done by implementing a mix of strategies, such as guaranteed income, bucketed portfolios, and flexible withdrawal rules. Here, we’ll explore several decumulation best practices, the role businesses play by offering the right mix of benefits and education, and how partnering with a professional employer organization (PEO) makes it easier for employees to confidently prepare for their financial future.

When most people think about saving for retirement, they think about maxing out contributions and watching their accounts grow. But as retirement approaches, another challenge begins: how do you spend that money in a way that keeps it going for decades? That’s decumulation.

Markets rise and fall, unexpected medical expenses pop up, and none of us knows exactly how long retirement will last. Yet over half of Americans enter their retirement years without a financial plan.

As an employer, this is where you can really help your team. By giving them the tools and guidance they need to create a smart decumulation strategy, you strengthen their financial confidence and show you value their long-term well-being.

6 key decumulation strategies and how to help your workforce prepare

There’s no one-size-fits-all approach to turning savings into a reliable stream of retirement income. However, effective decumulation involves a few common themes. Here are six strategies that employees can leverage and what employers can do now to encourage long-term financial security.

1. Establish guaranteed income

Retirees who know their basic expenses are covered can ride out market swings without worry. Guaranteed income sources, such as annuities and systematic withdrawals, provide peace of mind.

Some 401(k) plans include in-plan annuity options, allowing account holders to convert part of their savings into an immediate or deferred annuity, creating a predictable lifetime income stream.

Similarly, a managed withdrawal program (often around 4% annually, adjusted for inflation) generates steady income while keeping the remaining balance invested for growth.

Offering these options can help businesses attract and retain top talent, as a Vestwell survey found that 98% of respondents believe having guaranteed lifetime income payments included in their retirement benefits is important.

✓ What employers can do:

• Contact your retirement plan provider to see if they offer education or assistance on topics such as decumulation or consider partnering with a financial advisor for this service.
• Share retirement calculators with staff so they can visualize how guaranteed income streams work.
• Invite financial advisors to explain costs, guarantees, and trade-offs.

2. Keep taxes in mind

Taxes have a significant impact on how much of your retirement savings actually ends up in your pocket. Maintaining a diversified portfolio and sequencing withdrawals (drawing funds in a strategic order) can help minimize a person’s lifetime taxes and stretch their savings further.

✓ What employers can do:

• Offer options for both traditional and Roth 401(k) accounts.
• Provide education on tax-efficient rollovers and investing.
• Partner with financial planners to host employee workshops.

3. Use a bucket approach

According to Bankrate’s 2025 Money and Mental Health Survey, 43% of Americans say their finances negatively impact their mental health. Adopting a bucket approach can help people stress less about their financial well-being in their golden years.

In this strategy, savings are divided into three “buckets” based on periods of time and when money will be needed:

• Bucket 1 – Short-Term: Used for immediate expenses, typically includes liquid assets
• Bucket 2 – Medium-Term: Income-generating assets to be saved for future expenses
• Bucket 3 – Long-Term: Higher-risk, growth-oriented investments

Collectively, these buckets help retirees ride out market fluctuations and avoid selling long-term assets during downturns.

✓ What employers can do:

• Host workshops on how to build a bucket strategy.
• Offer access to savings and investment accounts aligned with this approach.

4. Adopt dynamic spending

Withdrawing a fixed dollar amount every year is simple but risky. This approach can result in retirees spending too much in down markets or too little in strong ones.

Conversely, a dynamic spending plan flexes based on market conditions and portfolio performance. Retirees spend more when returns are strong and pull back during downturns, helping to preserve their nest egg and maintain long-term income.

✓ What employers can do:

• Provide access to financial wellness tools, calculators, and the ability to receive personal advice.
• Highlight managed accounts or advisory services that offer adaptive withdrawal strategies.

5. Focus on proactive education

Including retirement savings plans in your benefits package is a good start, but even the best tools can go underused if employees don’t understand them. Proactively educating staff on how to prepare for retirement and stretch the funds the furthest builds confidence and leads to better outcomes.

✓ What employers can do:

• Offer access to financial advisors for assistance in creating personalized decumulation plans.
• Host educational webinars and provide on-demand access for those who aren’t able to attend live.
• Communicate the value of guaranteed income options, including how and when they make sense.

6. Consider other valuable benefits

Life is unpredictable, and a diversified benefits package protects employees from prematurely dipping into retirement savings. A set of well-rounded supplemental benefits can safeguard both income and assets:

• Disability insurance: With this coverage, employees don’t need to dip into their retirement accounts to cover living expenses during an illness or injury, preserving their savings.
• Life insurance: Provides financial support to dependents if an employee passes away, helping beneficiaries avoid tapping into the person’s retirement savings for immediate financial needs.
• Critical illness insurance: Reduces out-of-pocket medical expenses during a serious covered condition, helping to prevent employees from prematurely withdrawing from their retirement accounts.

✓ What employers can do:

• Consider adding supplemental plans to your benefits package to add an extra layer of safety.
• Add or expand coverage for disability, life, or critical illness insurance.
• Position these benefits as part of a holistic retirement security strategy.

Disclaimer: This blog is for informational purposes only and should not be taken as financial advice. Employees are encouraged to meet with a financial advisor to weigh their options and make the best retirement savings decisions for their individual situation.

Common decumulation mistakes to avoid

A solid retirement plan goes even further when retirees stay mindful of these potential challenges:

• Forgetting market sequence risk: Withdrawing funds during a market downturn can permanently damage a portfolio’s longevity.
• Underestimating longevity: Many employees plan for a 20-year retirement, but it’s not unusual to live 30 years or more.
• Following rigid withdrawal rules: The common “4% rule” for withdrawing funds works for some, but might not fit every situation. Instead, adjusting withdrawals for market conditions, inflation, or personal expenses needs can preserve nest eggs while also avoiding unnecessary underspending.
• Overlooking big-ticket costs: Life is unpredictable, and a sudden significant medical expense or need for long-term care can derail an otherwise sound retirement plan if there isn’t extra money set aside or supplemental insurance strategies in place.
• Mismanaging taxes: Retirees often draw income without considering the tax impact, which can result in higher brackets, unexpected Medicare surcharges, or paying more than necessary.

The good news is that with planning, flexibility, and the right guidance, retirees can avoid these common pitfalls, protect their lifestyle, and make their savings stretch further.

Setting your employees up for success can be easier than you think

Offering competitive retirement benefits can feel out of reach for many small and medium-sized businesses (SMBs). That’s where a professional employer organization (PEO) can make a major difference.

By pooling employees across many businesses, a PEO equips SMBs with Fortune 500-level benefits, tools, and expertise typically reserved for larger companies. For instance, ExtensisHR gives its customer access to:

• Robust retirement plans: Our large pooled 401(k) plan includes access to financial advisors to help establish guaranteed income streams, along with a modern platform and a comprehensive suite of retirement tools tailored to meet your plan participants’ needs. We even handle plan administration and management, too.
• Compliance know-how: We oversee the complex IRS and Department of Labor rules around distributions and required minimum distributions on your behalf.
• Financial wellness programs: We offer student loan savings programs and a variety of other financial wellness initiatives to help employees manage debt, save smarter, and plan for the future.
• Attentive employee-level support: Our Employee Solution Center helps your staff compare benefit plans, enroll in coverage, understand their payroll deductions, and more.
• Other critical benefits: We offer a suite of supplemental insurance plans, including short-term and long-term disability insurance, life insurance, and critical illness insurance.

With the right plans in place and an employer that supports their long-term well-being, employees can lay the groundwork for creating a lasting income stream. And for SMBs, teaming up with a PEO is the easiest way to offer strong retirement benefits and expert advice without straining their budget.

ExtensisHR is here to help your employees turn savings into sustainable income. Browse our PEO solution or contact us today to learn more.