US. Study Finds Disconnect Between Actual and Perceived Retirement Risks
Retirees face many financial risks, such as outliving their money, investment losses and unexpected health expenses, but a new study finds that they may be overestimating some risks while underestimating others.
In How Well Do Retirees Assess the Risks They Face in Retirement? by Wenliang Hou, a quantitative analyst at Fidelity Investments and former research economist at the Center for Retirement Research at Boston College, the study develops a lifecycle model of a typical retired household facing five categories of risk:
- longevity and the risk of living longer than expected and exhausting one’s resources;
- market risk associated with volatility and risks in the housing market;
- health, such as unexpected medical expenses and long-term care needs;
- family, such as divorce or death of a spouse; and
- policy risk, such as changes to Social Security.
The study then systematically values and ranks the impacts of these various risks from both the objective and subjective perspectives by quantifying the magnitude of the risks that retirees face and then comparing the two.
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