The investment lifecycle from accumulation to decumulation comes with many dilemmas but there are four key challenges in particular, according to Olivia Geldenhuys, head of investment specialists at Tatton Investment Management

Speaking at the Personal Finance Society roadshow today (June 3), Geldenhuys explored strategies for managing risk and protecting portfolios during market downturns.

She outlined there are four key challenges when it comes to decumulation which are: longevity risk, sequence of returns, inflation erosion, and behavioural biases.

“Your role as a financial adviser throughout this is to give investors and clients the peace of mind that you’re doing the right thing as they move through each of these different stages,” she said.

“But where we get to the decumulation side of this, it does become a different set of challenges that investors are ultimately dealing with.

“I know there will be multiple challenges that investors face here, but I’ve broken it down into four key areas.”

When it comes to longevity risk, she said as people are living a lot longer there is more to plan for.

“If you look at the life expectancy tables from 1965, the average life expectancy for an adult in the UK was 71 years old. Fast forward to 2025, that life expectancy is now at 81 years old.

“Everyone is lasting just a little bit longer, and that ultimately provides a risk to their investment portfolios and how they drill down on that.”

Geldenhuys explained the challenge with longevity risk is that it actually introduces a whole host of other risks.

For example, considering how much volatility a portfolio is going to experience and inflation, more of those risks have an opportunity to present themselves.

The other challenge is sequence of returns which looks at compounding the effects of market drawdowns.

“There are various components that fall into this, and the first one is really the timing of multiple terms and that’s about thinking when do the negatives follow your positives, and making sure that as you’re withdrawing on those portfolios that you’re not potentially drawing down on those negative periods when returns are low,” she said.

“Additionally, with withdrawal rates, people tend to anchor to them and set specific withdrawal rates at the beginning of retirement period, but not necessarily update them as they go through the journey.

“Therefore, if you have large withdrawal rates in the early period of retirement [ . . . ] that can again put a very adverse effect on the overall portfolio value.”

There is also inflation erosion, which Geldenhuys said is something that has been very topical over the past three years.

“Things are essentially more expensive now than they were three years ago, and that’s starting to have an impact on clients,” she said.

Lastly, the behavioural biases that start creeping in when you move from that accumulation side into decumulation start to present themselves in a slightly different way.

“This behavioural aspect, again, is where advisers play such a crucial role in holding people’s hands.”

Geldenhuys outlined a couple of different solutions that advisers can consider, with the first one being cash flow modelling.

“This one is a really important part to do, because it does give people that peace of mind.

“I know that past performance is not a reflection of future performance, but being able to actually assess what your future may or may not look like really helps them feel comfortable or potentially shows them where they might need some changes.”

She added: “What’s really important with cash flow modelling is it brings clarity to the complex situation because you’ve been able to think about budgeting in the accumulation phase — saving into Isas, contributing to pensions — that’s a relatively straightforward side of the equation.

“When you move to the decumulation side, you then have to think about the withdrawal rate, what are the tax implications, how long will that money last and what are some of the stress tested scenarios we can go through in order to understand what the overall picture is?”

Another solution is the bucket approach, which Geldenhuys said is something that’s incredibly popular.

She explained advisers also need to think about the growth orientation of portfolios as she argued it is an area where individuals need to think about the overall asset allocation of the portfolio.

And lastly, it’s around coaching and the client’s education.

“Financial advisers really have such an important role to play in that part of the process,” she said.

“It really is such a pivotal moment for people as they move between these areas of life, and I think that really holds a lot of weight.”

Source: ftadviser