Managing Misbehavior: Rational Choice in an Uncertain Retirement
By Rene Martel, Jennifer Gongola, sean klein, Avi Sharon
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.
Source: SSRN
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