Accumulation Period – Definition

Cite this article as:"Accumulation Period – Definition," in The Business Professor, updated February 15, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/accumulation-period-definition/.

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Accumulation Period (Investment) Definition

Accumulation period refers to the period in which annuitants make contributions to their annuity accounts as an investment method in retirement savings. This is as per the context of insurance.

A little more on What is Accumulation Period

In this period, savings and portfolio values are established by investors. The value of the account and investment capital continue to increase over the period until an investor can access it and is ready to do so. Investors can specify the duration of the accumulation period when they create the account. The length of the period can also be determined by when the investors withdraw money with respect to their retirement plans.

In the context of a deferred pension, the accumulation period is defined as the time during which the pensioner settles the pension and the amount in the accumulated retirement account. A pension following pension law is paid for a certain period and over a specific period.

Accumulated Period and Pension Plan

​Transferring costs to the second half of the year will allow people to invest in the market, creating savings that can grow over time. People can accumulate a very long period of accumulation, and if they regularly invest during their work, their savings can make a significant contribution.

The higher the amount you pay during the accumulation period, the longer the accumulation period and the higher the income stream after retirement.

Since a deferred pension is a general retirement strategy, investors choose between various types of deferred pensions which include variables, fixed or stock indices. No type is the same, and they have different characteristics, strengths, and weaknesses. Different investors choose differently depending on their own long term investment goals, financial situation and the level of risk they can tolerate.

Benefits brought forth by deferred retirement include a sense of security and the knowledge that one has the means of covering their financial needs for retirement and also possible tax benefits. A long term accumulation period is available for those who want to save as much as possible because of age. This is usually a reasonable financial strategy for them.

Transferring costs to the second half of the year allow people the opportunity to invest in the market, and this leads to the creation of savings that can grow over time. When people accumulate funds over a long period, their savings make a big contribution. This is because of the higher the amount paid during the accumulation and the longer the accumulation period, the higher the income stream after retirement.

References for Accumulation Period

Academic Research for Accumulation Period

  • Social security, induced retirement, and aggregate capital accumulation, Feldstein, M. (1974). Social security, induced retirement, and aggregate capital accumulation. Journal of political economy, 82(5), 905-926.  This paper gives an insight into the importance and complexity of social security. This is because one of the essential forms of household wealth among a majority of Americans is the anticipated social security retirement benefits.
  • A framework for setting retirement savings goals, Duncan, G. J., Mitchell, O. S., & Morgan, J. N. (1984). A framework for setting retirement savings goals. Journal of Consumer Affairs, 18(1), 22-46.  This papers’ primary purpose is developing a framework to be used when calculating the needed savings for meeting retirement goals under various assumptions regarding the economic and institutional environment.
  • The importance of bequests and life-cycle saving in capital accumulation: A new answer, Dynan, K. E., Skinner, J., & Zeldes, S. P. (2002). The importance of bequests and life-cycle saving in capital accumulation: A new answer. American Economic Review, 92(2), 274-278.  This paper argues that the allowance for uncertainty goes a long way in resolving the controversy that surrounds the importance of life-cycle and bequest saving by showing that these motives cannot be distinguished.
  • Dynamic lifecycle strategies for target date retirement funds, Basu, A., Byrne, A., & Drew, M. (2009). Dynamic lifecycle strategies for target date retirement funds. The lifecycle funds that are offered to retirement plan participants gradually reduce their stocks’ exposure as they come close to the target date of retirement. This paper attempts to show that deterministic switching rules like this, result in inferior wealth outcomes for investors when compared to other strategies that alter the allocation between growth and conservative assets based on the cumulative portfolio performance relative to a specific set target.
  • The capital accumulation ratio as an indicator of retirement adequacy, Yao, R., Hanna, S., & Montalto, C. (2003). The capital accumulation ratio as an indicator of retirement adequacy. This paper investigates the existing relationship between meeting the Capital Accumulation Ratio Guideline and retirement adequacy.
  • Do individual retirement accounts increase savings? Gravelle, J. G. (1991). Do individual retirement accounts increase savings? Journal of Economic Perspectives, 5(2), 133-148. This paper examines whether The IRAs increase savings or are just a windfall for well-off taxpayers. It also explains the main objective of the IRAs which is to encourage saving for retirement. It touches on the debate that has risen over the use of IRA tax deductions as a way of promoting private savings.
  • How retirement saving programs increase saving, Poterba, J. M., Venti, S. F., & Wise, D. A. (1996). How retirement saving programs increase saving. Journal of Economic Perspectives, 10(4), 91-112. The paper presents a summary of the effects of IRA and the 401(k) contributions made on the net personal savings.
  • The effects of pensions on household wealth: A reevaluation of theory and evidence, Gale, W. G. (1998). The effects of pensions on household wealth: A reevaluation of theory and evidence. Journal of Political Economy, 106(4), 706-723. This study investigates the extent to which households offset pension wealth by reducing other wealth. It also studies how the impacts that pensions have on wealth vary across households.
  • Portfolio size effect in retirement accounts: What does it imply for lifecycle asset allocation funds? Basu, A. K., & Drew, M. E. (2009). Portfolio size effect in retirement accounts: What does it imply for lifecycle asset allocation funds? Journal of Portfolio Management, 35(3), 61. This article explains why the retirement plan providers allocate a large number of funds to risky asset classes when the participants are young but systematically switch less to risky asset classes as the participants grow older and nearing retirement
  • Lifetime earnings, Social Security benefits, and the adequacy of retirement wealth accumulation, Engen, E. M., Engen, E. M., & Engen, E. M. (2005). Lifetime earnings, Social Security benefits, and the adequacy of retirement wealth accumulation. Soc. Sec. Bull., 66, 38. This article addresses issues such as controlling lifetime earnings level and uncertainty, the adequacy of household retirement saving and also examines the role played by social security in bolstering financial security.
  • Australia’s retirement income system, Edey, M., & Simon, J. (1998). Australia’s retirement income system. In privatizing social security (pp. 63-97). University of Chicago Press. This paper investigates how the Australian retirement system works and how it benefits the participants in the pension plan.

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