How Should Retirees Manage Investment and Longevity Risk in a Defined Contribution World?
11 Pages Posted: 3 May 2011 Last revised: 3 Jun 2011
The decumulation phase of the financial life-cycle is not well understood by the generation about to retire. They over-estimate the lifetime income a given lump sum of retirement savings will provide. This article sets out a framework for comparing the relative risks of longevity and investment policy, and for understanding how a retiree’s age and wealth (or lack of it) are important factors in how spending, investment, and insurance decisions should be made. It concludes by describing two new forms of financial products that help remove the undesirable gambling component from the traditional life annuity.
Keywords: Annuities, Decumulation, Longevity Risk, Pension Fund, Retirement Income, Wealth Zones
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