Are Retirees’ Estimates of Retirement Risks Accurate?

A 2020 white paper by Wenliang Hou for the Center for Retirement Research at Boston College looked at the differences between how retirees perceived retirement risk issues compared to what empirical evidence shows.

The five key risks evaluated were 1.) longevity risk; 2.) health risks; 3.) family risks; 4.) policy risks; and 5.) market risk.

Longevity Risk: outliving resources saved for retirement.

Health Risk: relates to the rising costs of out-of-pocket health care as people age and potential liquidity shortages to fund those costs.

Family Risk: refers to costs associated with unexpected expenses for children or grandchildren or the risk from divorce or other family emergencies.

Policy Risk: refer to changes in core retirement programs such as Social Security.

Market Risk: refers to the assumption of market volatility by the retiree because of the switch in the U.S. from Defined Benefit retirement programs (pensions) to workplace Defined Contribution programs which rely on employee contributions subject to market fluctuations.

The top three perceived concerns were:

1.)        Market Risk

2.)        Longevity Risk

3.)        Health Risk

The actual top three empirical results were:

1.)        Longevity Risk

2.)        Health Risk

3.)        Market Risk

All investing involves the risk of loss including the possibility that the investor could end up with less money than they invested, but the Boston College research shows that market pessimism may impact retirees less significantly than the risk of outliving financial resources or those of experiencing significant health issues during retirement.


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