October 9, 2023

Many people have “blind spots” when it comes to retirement and risks: Center for Retirement Research

Congratulations! You’ve made it to the end of work, and are ready for that pot of gold at the end of our working rainbow, retirement.

But are you aware that you now face a new array of risks?

Reporting for Yahoo! Finance, writer Susannah Snider cites a recent analysis from the Center for Retirement Research at Boston College that found “a disconnect between how retirees rank risks and their objective exposure to those dangers.” In fact, she writes, many retirees have “blind spots in relation to actual retirement risks.”

Blind spots? Like what?

Well, the article tells us, first up is longevity risk, or “the risk of living longer than anticipated and outlasting savings.”

Next, the article continues, is market risk, “the risks associated with market volatility… (and risk) related to real estate.”

Third, there’s health risk, defined as “the risk associated with medical expenses and long-term care needs.”

Rounding out the list are family risk, “the risk associated with divorce, supporting adult children and other familial challenges,” and policy risk, which the article (intended for a U.S. audience) describes as being unexpected changes in government programs for retirees.

When the folks at the Center crunched the numbers to quantify these risks, they found longevity topped the list.

“It is not surprising that longevity risk tops the list, because it affects the planning horizon for the retirement period,” the article notes.

“In the analysis, a couple would be willing to give up 33 per cent of their initial wealth to avoid longevity risk. That’s compared to the 27 per cent for a single man. The second and third places are market risk and health risk, in that order. Family risk ranks fourth. Policy risk finishes last,” the article explains.

In an interesting twist, when the Center’s researchers looked at how retirees view risks, they got a much different picture. Most single men surveyed put market risk at the top of their lists, the article notes.

“An individual would be willing to give up 31 per cent of his initial wealth to avoid market risk. This “reflects retirees’ exaggerated assessments of market volatility,” the study says. Single men rank longevity risk second and health risk third,” the article concludes.

There’s a lot to unpack here, but it would seem that people are more worried about how their investments will perform in retirement than they are about outliving their savings.

The Saskatchewan Pension Plan offers some help in managing these risks. You can help avoid market risk by letting SPP’s investment experts invest on your behalf, rather than taking a do-it-yourself approach. SPP has managed, over its more than 35 years of existence, a rate of return averaging an impressive eight per cent. While that track record is no guarantee of future performance, it is nonetheless important to consider.

As for outliving your savings, SPP allows its retirees to convert some or all of their retirement nest egg to an annuity. An annuity provides you with a guaranteed monthly income, for life. And the annuity payment does not change regardless of what the markets do. Check out how SPP can help build your retirement security!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


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