Managing the Risks – A Delicate Balance

Achieving a happy, comfortable retirement is largely dependent upon how successful one is at managing the many retirement risks we all face leading up to, and during, retirement.

Depending on whose literature you read there are anywhere from six to ten or more risks people should consider when planning for their post-working life lives.

Over the years, we’ve spent a lot of time talking about the consensus greatest risk everyone faces in retirement:  Living too long!

• Because life expectancies are merely averages, basing your retirement planning (and spending decisions) on your statistical life expectancy, in an era when many people live well into their nineties, can lead to the very unhappy reality that your nest egg will predecease you.  And we think dying broke is one very scary proposition!
  

But in addition to this longevity risk, we want to introduce you to another concept you may not have heard much about but which can be just as detrimental to your retirement happiness if not considered:  Behavioral risk.

Behavioral risk is the risk of human biases getting in the way of sound decision making as it pertains to retirement planning.

Both longevity risk and behavioral risk, along with several others, are covered quite concisely in “Quantifying Key Risks in Retirement” produced by the Institutional Retirement Income Council.

Increasing Your Retirement Happiness

So you’ve successfully considered all the retirement risks you face and are now ready to take action.  What is the best way to achieve retirement bliss?

In our view, three words:

ANNUITIES . . . ANNUITIES . . . ANNUITIES

It seems an over-simplification but the more you look at annuities, the more you’re likely to realize how effectively they address so many retirement needs.

But don’t just take our word for it.  Here’s what Meir Statman, Professor of Finance at the Leavey School of Business, Santa Clara University has to say on the subject in a recent article which appears in Annuity Digest entitled “Meir Statman on the Behavioral Obstacles Affecting Investing and Retirement Planning” (emphasis added):

         “People who know they have a pension or annuity income coming every month have more than utilitarian well-being, they also have psychological well-being. People with pensions, annuities or other guaranteed income are happier in retirement and show fewer symptoms of depression than people with equal income from sources which are not as assured.”

– Meir Statman –

Such a growing body of research links happiness to having secure, guaranteed cash flow that we continue to recommend them for anyone facing retirement or anticipating a personal injury settlement.

So be happy.  Choose the annuity!