The three largest risks a transitioning retiree is exposed
to are longevity, behavior, and timing.
The statistics on the current age wave are staggering. There is a 50% chance that one person in a 65
year old couple will live to age 92, and a 25% chance they will live to
97. In 2004, Hallmark reported selling
85,000 100-year-old birthday cards. With
all of the advances in medicine and biotechnology, I believe that we will
continue to live longer, and as life expectancy grows, so does the need for a
larger nest egg for a longer retirement.
Clients often challenge me with the idea of behavioral
risk, by stating that they were surely exposed to behavioral risk their entire
investing experience. I would argue back
that this behavioral risk is heightened as your get closer to needing to use
your assets to supplement income. As the
markets climb and fall, it can be difficult to stomach the volatility. Part of putting together the right transition
plan is to assume an investment strategy that can ride out the volatility more
smoothly.
Investment markets do not care when you decide you want to
retire. The economy moves in cycles from
expansion to recession. If the timing
of your planned retirement happens to fall during the next recession, you need
some sort of infrastructure in your plan to guard against this kind of
timing.
These three risks are often ignored until just before the
move toward retirement. The time to
start building a protection infrastructure around your retirement nest egg is
much earlier. These challenges are real
and must be faced head on. Attention to
retirement transition planning is
important.
