The View From Unretirement: Are you planning for retirement all wrong?

by | Aug 18, 2022 | Stock Market

If retirement is nearing (however you define retirement personally), it’s understandable that you’re worrying about the risks you’ll face. But you just may be worrying too much about the wrong ones. That’s the conclusion of economist Wenliang Hou and the basis of a recent paper he wrote for the Center for Retirement Research (CRR) at Boston College, “How Well Do Retirees Assess the Risks They Face in Retirement?” (Hou came up with his findings while working there; these days, he’s a quantitative analyst in the fixed income division of Fidelity Investments.)

The 5 big retirement risks Basically, Hou says, there are five major risks in retirement: ·      Longevity risk — the risk you’ll outlive your money ·      Market risk — the risk of volatility in the stock market and housing market ·      Health risk — the risk of unexpected medical expenses and long-term care needs ·      Family risk — the risk of things like divorce, the death of a spouse or partner and adult children becoming ill or unemployed ·      Policy risk — the risk of the Social Security Trust Funds’ insolvency, leading to a 20% to 25% reduction in retirement benefits if there are no policy changes Hou compared the actual risks of each (known as objective or empirical risks) with how people assess the probability of those risks (known as subjective risks). To do this, he reviewed the University of Michigan’s biennial Health and Retirement Study, which surveys a …

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