Accumulation Phase - Definition
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Accumulation Phase (Annuities) Definition
In annuities, an accumulation phase refers to the period when investors make deposits into annuity so as to build up the cash value of the annuity. Once the cash in the annuity plan accrues, the annuitization phase can then be activated, this is often based on schedule. Accumulation phase also refers to a period when investors saving up for retirement make plans towards building up the cash value of the retirement plan. This is often done by making frequent or periodic deposits or saving into the retirement plan. In retirement, the accumulation phase is followed by the distribution phase, while in annuity, accumulation phase is followed by the annuitization phase. Bothe periods refer to when investors are paid their accumulated funds.
A Little More on What is Accumulation Phase
Building up cash value, saving, making monetary deposits are terms that are central to accumulation phase, accumulation cannot occur without an inverter building up the cash value of a retirement plan or annuity product through saving or making deposits. Once the accumulation phase ends, the distribution phase or annuitization phase begins, this is when investors can access the funds they have accrued in their individual plans. In mosts cases, especially people saving for retirement, accumulation phase is activated once they start work and it ends when they retire. Although, in some cases, some people start their accumulation phase even before they working life begins. Here are some key things to note about accumulation phase;
- It is a period when an individual builds up the cash value of a retirement package or annuity plan.
- Accumulation phase often coincides with when people begin their work life.
- In annuity, the money saved up is given to the investor in the annuitization phase.
- Money deposited or saved in a retirement package are also dispersed once the individual retires or at the end of their working life. This is called the distribution phase.
- How lengthy an accumulation phase will be is determined by the investor and based on the type of package selected.
The significance of accumulation phase to individuals and investors cannot be over emphasized. People who effectively build up their cash value during accumulation phase enjoy a better life later. Financial experts are of the opinion that people start accumulation phase early enough, individuals can begin saving in their 20s. The financialdifference between a person that starts saving in his 20s and someone that starts in his 30s will be huge. According to these experts, the earlier an accumulation phase begins, the better.
Reference for Accumulation Phase
https://www.investopedia.com/terms/a/accumulationphase.asphttps://www.superguide.com.au/superannuation-topics/accumulation-phasehttps://www.canstar.com.au ... What is the Accumulation Phase of Super?https://www.thayerpartnersllc.com/.../what-do-accumulation-phase-and-distribution-p...https://kohrfinancial.com/process/the-accumulation-phase-of-economic-life/
Academic research on Accumulation Phase
Pensionmetrics: stochastic pension plan design and value-at-risk during the accumulation phase, Blake, D., Cairns, A. J., & Dowd, K. (2001). Pensionmetrics: stochastic pension plan design and value-at-risk during the accumulation phase. Insurance: Mathematics and Economics, 29(2), 187-215. We estimate values-at-risk (VaR) in the accumulation phase of defined-contribution pension plans. We examine a range of asset-return models (including stationary moments, regime-switching and fundamentals models) and a range of asset-allocation strategies (both static and with simple dynamic forms, such as lifestyle, threshold and constant proportion portfolio insurance). We draw four conclusions from our investigations. First, we find that defined-contribution (DC) plans can be extremely risky relative to a defined-benefit (DB) benchmark (far more so than most pension plan professionals would be likely to admit). Second, we find that the VaR estimates are very sensitive to the choice of asset-allocation strategy. The VaR estimates are also sensitive, but to a lesser extent, to both the asset-returns model used and its parameterisation. The choice of asset-returns model is found to be the least significant of the three. Third, a static asset-allocation strategy with a high equity weighting delivers substantially better results than any of the dynamic strategies investigated over the long term (40 years) of the sample policy. This is important given that lifestyle strategies are the cornerstone of many DC plans. Fourth, conservative bond-based asset-allocation strategies require substantially higher contribution rates than more risky equity-based strategies if the same retirement pension is to be achieved. Meanvariance optimization problems for an accumulation phase in a defined benefit plan, Delong, ., Gerrard, R., & Haberman, S. (2008). Meanvariance optimization problems for an accumulation phase in a defined benefit plan. Insurance: Mathematics and Economics, 42(1), 107-118. In this paper we deal with contribution rate and asset allocation strategies in a pre-retirement accumulation phase. We consider a single cohort of workers and investigate a retirement plan of a defined benefit type in which an accumulated fund is converted into a life annuity. Due to the random evolution of a mortality intensity, the future price of an annuity, and as a result, the liability of the fund, is uncertain. A manager has control over a contribution rate and an investment strategy and is concerned with covering the random claim. We consider two meanvariance optimization problems, which are quadratic control problems with an additional constraint on the expected value of the terminal surplus of the fund. This functional objectives can be related to the well-established financial theory of claim hedging. The financial market consists of a risk-free asset with a constant force of interest and a risky asset whose price is driven by a Lvy noise, whereas the evolution of a mortality intensity is described by a stochastic differential equation driven by a Brownian motion. Techniques from the stochastic control theory are applied in order to find optimal strategies. A pension fund in the accumulation phase: a stochastic control approach, Federico, S. (2008). A pension fund in the accumulation phase: a stochastic control approach. Banach Cent. Publ. Adv. Math. Finance, 83, 61-83.Solvency of Pension Reform: Issues and Challenges of the Accumulation Phase of Retirements in Nigeria/REFORME DE PENSION DE LA SOLVABILITE , Adeyele, J. S., & Maiturare, M. N. (2012). Solvency of Pension Reform: Issues and Challenges of the Accumulation Phase of Retirements in Nigeria/REFORME DE PENSION DE LA SOLVABILITE: ENJEUX ET DEFIS DE LA PHASE D'ACCUMULATION DES DEPART A LA RETRAITE AU NIGERIA. Canadian Social Science, 8(2), 90. Objective: The valuation of pension reform was conducted with the primary purpose of determining its sustainability. Method: Compliance level among the participants was examined. In order to ascertain the accuracy of the data supplied by the respondents, their respective salary scales obtained from the payroll offi ces were used. Questionnaires were randomly distributed to workers in various units of the institutions discretionally chosen. The monthly rate of 2 percent used in the scheme valuation represents sanction imposed by the PenCom for any defaulter. Result: Evidence from the study suggests that the valued schemes are deficit as follows: private university, N254, 329, 938; Federal University, N1, 271, 649, 690. Conclusion: If the present trend of noncompliance by some employers is not intersected by the regulatory body in time, many contributors stand the risk of losing their funds as the scheme is not likely to be sustainable. We therefore recommend that the outstanding debts be paid without any further delay Fixed and Dynamic Asset Allocation in the Accumulation Phase, Hagelstein, P., Lackner, I., Otto, J., Perona, A., & Piziak, R. (2019). Fixed and Dynamic Asset Allocation in the Accumulation Phase. Journal of Finance and Investment Analysis, 8(1), 1-1. In this paper, we consider the historical real returns of fixed and dynamic allocation portfolios consisting of equities and short term bonds over thirty year time horizons, where fixed real contributions are made to the portfolios annually. In particular, we consider both the scenario where the investor annually rebalances a portfolio to a fixed ratio as well as the scenario where the investor™s annual contribution has a fixedratio but the portfolio is never subsequently rebalanced. These results provide investors in the accumulation phase historical data that may provide a useful guide to asset allocation decisions. Of particular interest is that, over the 88 thirty-year time intervals considered, dynamic allocation portfolios had a better overall performance than fixed allocation portfolios, and that both fixed and dynamic allocation portfolios strongly benefited from a heavy equity exposure.JEL classification numbers: G11; N21; N22Keywords: portfolio allocation; historical returns; accumulation phase