How Accurate Are Retirees’ Assessments of Their Retirement Risk?

77 Pages Posted: 18 Aug 2020

See all articles by Wenliang Hou

Wenliang Hou

Boston College - Center for Retirement Research

Date Written: July 2020

Abstract

Retirees with limited financial resources face numerous risks, including out-living their money (longevity risk), investment losses (market risk), unexpected health expenses (health risk), the unforeseen needs of family members (family risk), and even retirement benefit cuts (policy risk). This study systematically values and ranks the financial impacts of these risks from both the objective and subjective perspectives and then compares them to show the gaps between retirees’ actual risks and their perceptions of the risks in a unified framework. It finds that 1) under the empirical analysis, the greatest risk is longevity risk, followed by health risk; 2) under the subjective analysis, retirees perceive market risk as the highest-ranking risk due to their exaggeration of market volatility; and 3) the longevity risk and health risk are valued less in the subjective ranking than in the objective ranking, because retirees underestimate their life spans and their health costs in late life.

Suggested Citation

Hou, Wenliang, How Accurate Are Retirees’ Assessments of Their Retirement Risk? (July 2020). Available at SSRN: https://ssrn.com/abstract=3653456 or http://dx.doi.org/10.2139/ssrn.3653456

Wenliang Hou (Contact Author)

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

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