'In accumulation, there's time to recover; in decumulation, volatility is something that needs to be really managed closely,' says Sun Life's Michael Carter
Retirement planning has long been focused on accumulation, getting up and coming retirees to save, invest, and grow their savings to ensure a successful retirement.
But according to Michael Carter, assistant vice president of product development and sponsor experience at Sun Life, the real test starts when that climb ends.
“As an industry, we’ve cut trails up this mountain. But we're now at the top of the mountain, and there's no path. The other challenge is we're all not going to the same place. Some people are going to the ocean, some people are going to go skiing, some people are going to cottages. The number of paths that we need down this mountain is multiple of what we need to go up the mountain,” said Carter, at last week’s Canadian Pension and Benefits Institute (CPBI)’s annual Atlantic conference in Prince Edward Island.
He isn’t talking in metaphors for the sake of storytelling. He’s notably pointing to the reality that while target date funds and auto-enrolment features have helped members during the saving years, there’s a lack of structured, accessible solutions to help them decumulate their wealth - draw down their savings - in a way that balances risk, flexibility, and emotional certainty.
Carter said Canadians face a “new set of challenges” in retirement. These include volatility and sequence-of-returns risk, longevity risk, and cognitive decline, none of which are easily addressed through conventional products or the traditional advice model and are also harder to manage and often misunderstood by the average plan member. Notably, volatility, is particularly dangerous in the early years of retirement.
“‘In accumulation, there’s time to recover; in decumulation, volatility is something that needs to be really managed closely," he said.
Carter believes the industry needs to focus on straightforward, purpose-driven approaches. He emphasized the need to strike a balance between simplicity and effectiveness, especially as more Canadians approach retirement without access to defined benefit plans. With most private sector workers now relying on defined contribution plans, Carter said it's up to employers and plan providers to lead the charge.
“The skills and lessons that [Canadians] learned in accumulation are not perfect in solving the decumulation problem,” he said. “It means that us in the room, the private sector industry are really going to be the ones that are constantly thinking about innovation.”
He believes plan sponsors are now “at a reflection point” and must ensure they have the right mix of products and services “to support the full breadth of our career from beginning to end.”
To that end, Carter outlined a potential middle-ground solution to the decumulation dilemma: the target age fund. Positioned between the guaranteed security of a Variable Payment Life Annuity (VPLA) and the flexibility of traditional drawdown products like LIFs, target age solutions are designed to appeal to most retirees who are hesitant to sacrifice growth and control in exchange for certainty.
“VPLAs allow you to manage your long-term interest… they give you that guarantee like an annuity,” he explained. “Target age, like a LIF, doesn’t give you your longevity guaranteed but offers a lot more flexibility.”
Carter sees this product as a response to market behaviour. Only a small fraction, roughly 10 per cent, of retirees are inclined to lock into guaranteed products, with the remaining 90 per cent who prefer flexibility, even if that means managing greater risk. Carter noted the target age solution is designed to address that broader segment by simplifying the retirement income decision while retaining access and adaptability.
Instead of selecting a retirement date, members choose a target age, anywhere from 90 to 95, based on how long they want their assets to last. The product then manages the withdrawal rate dynamically to meet that timeline.
In practice, target age solutions offer predictable, automated annual income adjusted each year based on market performance and member withdrawals. Unlike annuities, these payments are not fixed, but the product provides income estimates and a glide path aimed at helping assets last until the selected age. Crucially, it also doesn’t require giving up liquidity, explained Carter.
“You can liquidate your target age solution and access that money and move it to another solution so you’re not locked in,” said Carter.
He emphasized that this flexibility is critical to meeting members’ emotional needs. Many retirees resist annuities not because they doubt the math, but because they don’t want to lose access to their capital. They want the option to pivot in response to uncertainty or to help family members if needed.
“They want to keep that possibility,” Carter added. “Either dealing with uncertainty coming down the road or making sure they can help their loved ones.”
According to Carter, one of the core strengths of the target age solution is its ability to provide income flexibility while still allowing for capital access and wealth transfer, features that traditional guaranteed products like VPLAs often sacrifice.
While VPLAs are strong on longevity risk management, they typically restrict access to capital and limit the ability to pass on assets. Target age funds, by contrast, aim to strike a balance.
Carter believes the retirement income stage presents a fundamentally different set of challenges than the accumulation phase and that much of what the industry has learned so far must now be re-applied in a completely new context.
While DC plans have successfully guided people up the savings “mountain” using auto features, advice, and default investment options, Carter warned that those same tools don’t easily translate into effective decumulation strategies.
Compounding these technical challenges is a psychological shift that happens at retirement. Carter argued that retirement is as much an emotional experience as it is a financial one. That’s why he typically urges plan sponsors to build trust before introducing solutions, underscoring that people need to feel confident and secure before they’ll act.
Another complication, Carter said, lies in the DC culture itself. These plans have conditioned members to take full ownership of their savings journey—and that mindset doesn’t disappear at retirement.
According to Carter, the retirement drawdown phase should be approached through three key pillars: advice, experience, and product. Trust-building is essential through advice, followed by a seamless member experience that provides structure without stripping away flexibility. Products should then be layered in to match individual needs.
“It's about building that trust and that confidence,” said Carter, “so they’re happy with where they’re going and they’re happy with the plan."
