Managing Misbehavior: Rational Choice in an Uncertain Retirement

14 Pages Posted: 27 Jan 2022

See all articles by Rene Martel

Rene Martel

PIMCO

Jennifer Gongola

PIMCO

Sean Klein

PIMCO; Merage School of Business

Avi Sharon

Pacific Investment Management Company (PIMCO)

Date Written: December 1, 2021

Abstract

Behavioral science has helped encourage better behaviors for many investors who are accumulating savings for retirement. This paper investigates the application of behavioral science to decumulation to help investors make better choices and maintain quality of life in retirement. We conducted a proprietary research study, collecting more than 750 responses from affluent and high-net-worth investors in the United States age 55 and older. The results identify key behavioral influences linked to retirement decisions, including overconfidence, loss aversion, the relevance of nonmarket risks, and the treatment of legacy goals. The study also explored potential nudges that might incline retirees to naturally fall into more optimal investing and spending behaviors, such as having reliable cash flows, spending flexibility, and dual portfolios. Finally, we reflect on how these connections inform our approach to retirement decumulation and how a behaviorally compatible plan can help investors balance important trade-offs to more fully enjoy and maximize retirement.

Keywords: retirement income, retirement security, behavioral science, decumulation

JEL Classification: G10, G11

Suggested Citation

Martel, Rene and Gongola, Jennifer and Klein, Sean and Sharon, Avi, Managing Misbehavior: Rational Choice in an Uncertain Retirement (December 1, 2021). Retirement Management Journal, Vol. 10, No. 1, 2021, pp. 67-78, Available at SSRN: https://ssrn.com/abstract=4017997

Rene Martel

PIMCO ( email )

United States

Jennifer Gongola

PIMCO ( email )

United States
8052451774 (Phone)

Sean Klein

PIMCO ( email )

United States
9497207705 (Phone)

Merage School of Business ( email )

4293 Pereira Drive
Irvine, CA California 92697
United States

Avi Sharon (Contact Author)

Pacific Investment Management Company (PIMCO) ( email )

United States

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