Retirement Goals Research Articles

Planning for Retirement? The Importance of Time Preferences

Ensuring retirement income security is a priority for individuals, employers, and policymakers. Using merged administrative and survey data for public sector workers in North Carolina, we explore how workers’ characteristics and preferences are associated with planning and saving for retirement. We then assess the “quality” of a retirement plan and whether retirement behavior is consistent with these plans. The findings indicate that the way that individuals discount future consumption is associated with the extent of their retirement planning and preparedness. We find that individuals who engage in retirement planning are better prepared to meet their retirement goals upon leaving their career jobs.

<p>Trialing an online intervention to improve retirement planning goal setting and goal specificity</p>

PurposeTime perspective (TP) is the term used to describe people’s preferences to focus on the past, present, and the future. Previous research demonstrates a link between TP and retirement planning. The objective of this study was to evaluate a TP-based online training intervention to improve retirement planning emphasizing the accumulation of resources.Patients and methodsTwenty-two (M=59.41 years) working and fully retired participants were compared to a control group of 18 (M=56.67 years) participants. The intervention included three separate modules delivered online at the rate of one per week over a 3-week testing session. Outcomes focused on retirement goals and goal specificity.ResultsWhen compared to the control group, subjects in the intervention improved the number of goals relating to the accumulation of health (F(1,35)=10.15, P<0.01, 95% CI [0.28, 2.77]) and emotional resources (F(1,35)=5.16, P<0.05, 95% CI [−0.22, 2.37]). Goals relating to the accumulation of health resources also became more specific within the experimental group when compared to the control group and a significant interaction was recorded (F(1,38)=15.78, P<0.01, 95% CI [0.33, 1.74]). Similar interactions between the control and experimental groups were reported for the accumulation of cognitive resources (F(1,38)=13.15, P<0.01, 95% CI [0.28, 1.96]) and for emotional resources (F(1,38)=7.39, P<0.01, 95% CI [0.00, 1.50]). Qualitative feedback included recommendations to improve engagement by using more activities, providing clearer navigation instructions and avoiding the use of animation.ConclusionApplying a TP-based framework to the design of an online training intervention helped improve the accumulation and specificity of emotional and health resources for retirement. The study contains a number of theoretical and practical recommendations informing the design of future retirement planning interventions.

Glide Paths Based on a Retirement Goal and Depleting Human Capital

The retirement goals of many Americans are underfunded. The problem is compounded by the complexity of self-managing distribution portfolios, particularly as DC plans replace DB plans. We believe most retirement glide paths are satisfactory but suboptimal solutions. We introduce a glide path of financial assets over the life cycle based on a retirement goal and depleting human capital. The method is anchored to the foundational principles of intertemporal portfolio theory while borrowing heavily from goals-based asset allocation. The result is a dynamic asset allocation over the life cycle that is a function of critical input variables relevant to retirement planning such as retirement savings, retirement consumption and risk aversion. The glide path can be customized to individuals, or semi-customized to discrete subpopulations of DC plan participants.

Editor’s Letter

1. Brian R. Bruce 1. Editor-in-Chief <!-- --> 1. To order reprints of this article, please contact David Rowe at d.rowe{at}pageantmedia.com or 646-891-2157. To open this issue, Mladina and Grant introduce a glide path of financial assets over the lifecycle based on a retirement goal and

Financial Literacy Assessment in Bosnia and Herzegovina

Financial literacy has become an interesting topic recently, given the global trends and the need for individuals to take responsibility for their personal finances and, in particular, for their retirement planning. In this paper we investigate financial literacy of adults in Bosnia and Herzegovina. Our survey questionnaire is based on the OECD/INFE questionnaire, with some adjustments to national specificities. The method of research is the online survey.Looking at the results, our research overall shows rather low level of financial literacy of Bosnian citizens. In particular, low level of understanding and skills related to basic concepts, such as compound rate of return and diversification, indicate that there are many aspects of financial knowledge that could be improved. Financial knowledge and behavior of our sample is better positioned than the average in other countries. Due to worse attitude, the overall level of financial literacy is lower than the average in other countries. In addition, the analysis showed that attitudes towards the money are worse than the attitudes of citizens in other countries. Looking at at different levels of income, we notices no statistically significant difference in behavior and attitudes within different groups.The low level of financial literacy emphasizes the importance of introducing financial education at an earlier age, since the lack of financial education can cause people to start saving later in life, thus limiting required retirement goals. As a result, it is unlikely to achieve an optimal balance between current consumption during work and future consumption as individuals retire. In addition, the lack of information on the distribution of risk and return on various investments can lead to the misallocation of their pension portfolios.

Retirement Goal Clarity, Needs Estimation, and Saving Amount: Evidence From Hong Kong, China

This study investigated the relationship between retirement saving needs estimation and the amount of self-reported private retirement savings amassed by working-age adults in Hong Kong, China, by focusing on the mediating role of retirement saving needs estimation between retirement goal clarity and the amount of private retirement savings. Based on the data collected from a phone survey of 958 Hong Kong workers aged 25–64 years, we found that the retirement saving needs estimation was associated with the savings of individuals over 44 years old; furthermore, it mediated the association between retirement goal clarity and self-reported private retirement savings. The findings offer theoretical contributions for financial planning conceptual frameworks and provide policy implications.

Financial Planning for Retirement: Age-Related Differences Among Spanish Workers

This article tests an integrated model of financial planning for retirement (FPR), with 948 Spanish workers aged between 30 and 63. Overall, the three model dimensions—capacity, willingness, and opportunities to plan and save—show a significant association with financial planning for retirement. The moderator role of age in the relationships between antecedents and financial planning was tested. Consistent with our hypothesis, younger participants showed a greater level of FPR if they were characterized by a high level of education. The interaction between both age and psychological preparation for retirement and retirement goals clarity failed to reach statistical significance. We discuss how financial planning effectiveness could be increased based on the results of importance-performance map analyses.

A comparative study of the retirement confidence level between domestic workers and OFW as linked to their job commitment

The paper investigated the retirement confidence among Domestic and Overseas Filipino Workers in relation to job commitment. Specifically, the study determined the relationship between clarity of retirement goal and retirement confidence that refers to the quality of life that could still be maintained during retirement. For several studies, savings already provided perceived confidence for retirement to would be retirees but this study would check if the perception still applies. Banks in the Philippines today offer a savings interest rate of less than 1% (excluding withholding tax) with the current inflation rate target of 4.3%. The study output could motivate government agencies to review the policy on mandatory retirement package that direct employers offer their employees for comfortable retirement. Purposive sampling was employed to determine the respondents who were the domestic and overseas Filipino workers in United Arab Emirates and New York. Explanatory-causal design was utilized to explain relationship/influence and effect of the variable/s on the retirement confidence. The results of the regression indicated that the predictor for retirement confidence explained 55.4% of the variance (R2=.55, F (4,13) = 4.03, p < 0.05). It was found that job investment (p < .01) significantly predicted retirement confidence. The result of the correlation of retirement confidence to the job commitment proves significant, (r (18) = 0.50, p < .05).

Retirement Income Showdown: Risk Pooling vs. Risk Premium

The retirement income showdown regards finding the most efficient approach for meeting retirement spending goals: obtaining mortality credits through risk pooling with an income annuity, or investing for upside growth through the stock risk premium. Analyzing the question involves understanding how clients view a hierarchy of retirement goals related to spending, liquidity and legacy. Client attitudes toward longevity risk aversion also matter: how fearful is the client of outliving their investment portfolio? Risk pooling offers a unique source of returns not available from an investment portfolio: those in the risk pool who experience shorter lives subsidize the payments to those in the pool who experience longer lives (mortality credits). Risk pooling may provide a cheaper way to meet a spending goal, leaving more assets to cover contingencies and support legacy. The primary advantage of an investments-only strategy is that it can support greater legacy in the short-term compared to a partial-annuitization strategy that uses risk pooling to meet spending goals and investments to meet liquidity and legacy goals. Risk averse retirees, though, may feel obligated to earmark a larger portion of their portfolio to spending goals, which leaves less true liquidity, while also exposing the spending goal to the risk of portfolio depletion. The advantages of risk pooling include a contractual guarantee to support lifetime spending, the ability to meet spending goals with a smaller portion of assets that creates greater true liquidity for the retirement income plan, and the potential to support a larger legacy in the event of a long life.

Cross-National Differences in Goals for Retirement: the Case of India and the United States.

In the present investigation, a comparison is made between the retirement goals of working Indian adults and previously published data on the retirement goals of working adults in the United States. Participants were 158 Indian respondents between 21 and 60years of age. Each respondent completed a questionnaire in which they reported the nature of the goals they held for retirement. For the most part, the types of the goals enumerated by workers from India were similar to those of Americans. However, Indians were found to focus more on financial stability and self-related goals, whereas Americans tended to focus on leisure and exploration activities. Moreover, Indian workers reported fewer retirement goals and their goals were less concrete than those reported by Americans. Findings are discussed in terms of the way culturally-based differences and similarities in retirement systems can impact some aspects of future goals (e.g., frequency; concreteness), but not other aspects of goal structures (e.g., goal content).

Retirement Planning Behaviour of Working Individuals and Legal Proposition for New Pension System in Malaysia

&lt;p class="MsoNormal" style="text-align: justify;"&gt;Problems have been identified pertaining to retirement scheme of the private sector employees in Malaysia where there is no legislated pension system in force. As a result of that, pension scheme and savings are more of a voluntary basis; although the principle is good but in practice many retirees suffer financially during their retirement. The objectives of this study are to examine factors contributing to individual’s retirement planning behavior and the private pension system in the private sector in Malaysia. Retirement planning behaviour in this study was measured with series of questions on behaviour about retirement planning. A total of 500 working individuals from private sectors in the age group of 40 years and above had participated in this study. The results identified several significant variables in the prediction of retirement planning among working individuals in Malaysia, including individual who had higher levels of education, higher levels of income, financial literacy, retirement goal clarity and attitude towards retirement. There is a correlation between retirement planning behavior and saving for old aged. As a response to the result collected from the survey, a legal proposition is put forward to address issues of pension during retirement among private sector’s employees.&lt;/p&gt;

Practical Applications of The Case for Liquid Alternatives in Defined-Contribution Plans

“We know that retirees need to save more, and plan sponsors have access to investment tools that can help them meet their retirement goals,” says Scott Kilgallen of Neuberger Berman, the co-author of a recent article that explains why DC plan sponsors should consider adding liquid alts to their fund lineups and discuss common approaches and structures. Liquid alts provide a useful way to include hedge fund–like strategies without some of the drawbacks of traditional hedge fund vehicles. “The question is always, how can you achieve better returns over a range of market environments? Liquid alts may complement other asset class offerings in a portfolio by seeking to lower overall portfolio volatility,” says co-author David Kupperman (also of Neuberger Berman).

Promoting later planned retirement: Construal level intervention impact reverses with age

We predict an age-related reversal of the effect of a construal level intervention on planned retirement age. As individuals’ temporal distance to retirement decreases, their primary retirement goal is likely to change. Younger individuals are primarily driven by desirability goals, but older individuals are driven by feasibility goals. Results from an online survey show that indeed a construal level intervention-induced global mindset increases the impact of desirability considerations on planned retirement age for younger individuals (and lowers planned retirement age), but increases the impact of feasibility considerations for older individuals (and raises planned retirement age). The findings underline the importance of taking into account heterogeneity in individuals’ chronic construals of decisions when designing construal level interventions to promote later planned retirement ages.

Promoting Later Planned Retirement: The Differential Impact of Construal Level Interventions for Younger and Older Individuals

textabstractIndividuals’ planned retirement age is affected by a trade-off between financial costs (a feasibility oriented consideration) and the number of years in retirement (a desirability oriented consideration). Previous research shows that construal level interventions (i.e., activating a global vs. local mindset with individuals) affect the relative importance of these two types of decision aspects such that primary considerations become more important under a global mindset compared to secondary considerations. In this research we predict that this results in an age-related reversal of the effect of a construal level induced global mindset on planned retirement age. The reason is that as individuals’ chronic temporal distance to retirement decreases (i.e., they become older) their primary retirement goals are likely to change. Younger individuals are temporally distant from retirement and primarily driven by desirability goals, while older individuals are temporally close to retirement and driven by feasibility goals. Therefore, since a global construal level intervention increases the impact of individuals’ primary goals, we predict that such an intervention decreases planned retirement age for the younger age group but increases it for the older age group. Results from two online surveys confirm this predicted decision process. They show first that indeed younger individuals are more likely than older individuals to plan for a retirement age that they cannot afford. Second, the results demonstrate that a construal level intervention-induced global mindset increases the impact of desirability considerations on planned retirement age for younger individuals (and lowers planned retirement age), but that it increases the impact of feasibility considerations for older individuals (and increases planned retirement age). Jointly, these findings underline the importance of taking into account both individuals’ chronic and situationally-induced mental construals of the planned retirement decision when designing policy communications to promote individuals’ retirement at a later age.

Superannuation retirement balances: A surprising outcome

Although the guaranteed superannuation system is believed by many to provide a safe and adequate source of funds in retirement, some will be unpleasantly surprised. The aim of this paper is to demonstrate the significant effect of the economic cycle on the final accumulated balance in superannuation retirement accounts. A Monte Carlo simulation is used to illustrate the variance in outcomes that can be expected for a hypothetical individual. The expected accumulated superannuation balances for two hypothetical individuals are estimated. The spread of outcomes is used to illustrate the problem of using only the mean of the distribution as a predictor of wealth in the retirement years. Many retirees rely on superannuation to fund their retirement. However regular contributions to superannuation does not ensure a predictable outcome, and active management of contributions is required if retirement goals are to be met.

Reducing Retirement Risk with a Rising Equity Glide-Path

This study explores the issue of what is an appropriate default equity glide-path for client portfolios during the retirement phase of the life cycle. We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios. This result may appear counter-intuitive from the traditional perspective, which is that equity exposure should decrease throughout retirement as the retiree’s time horizon (and life expectancy) shrinks and mortality looms. Yet the conclusion is actually entirely logical when viewed from the perspective of what scenarios cause a client’s retirement to “fail” in the first place. In scenarios that threaten retirement sustainability – e.g., an extended period of poor returns in the first half of retirement – a declining equity exposure over time will lead the retiree to have the least in stocks if/when the good returns finally show up in the second half of retirement (assuming the entire retirement period does not experience continuing poor returns). With a rising equity glide-path, the retiree is less exposed to losses when most vulnerable in early retirement and the equity exposure is greater by the time subsequent good returns finally show up. In turn, this helps to sustain greater retirement income over the entire time period. Conversely, using a rising equity glide-path in scenarios where equity returns are good early on, the retiree is so far ahead that their subsequent asset allocation choices do not impact the chances to achieve the original retirement goal.

Pitfalls in Retirement

The market turmoil of recent years has left many who are in or near retirement uncertain about how best to protect their nest eggs. This article offers insights into the key financial pitfalls to which retirees are prone. Investors can achieve their retirement goals by spending sustainably, maintaining equity exposure, addressing longevity and inflation risks, and devising a sound plan with which they feel comfortable. <b>TOPICS:</b>Retirement, wealth management, risk management

Retirement planning in individual asset-liability management

Increasing financial pressure on State controlled pension systems has caused, over the last two decades or so, an unprecedented effort by private pension funds (PFs) and insurance companies to issue new types of retirement vehicles. This article investigates the effects of such widespread phenomenon from the perspective of individual asset liability management. A multistage stochastic programming problem has been formulated with investment opportunities including PFs, unit-linked contracts and variable life annuities. The introduction of a specific risk measure with respect to a desirable retirement income stream and a planning horizon spanning the entire individuals’ working life helps to analyse the implications of observed market dynamics on retirement strategies. We present comparative results focusing on the retirement planning problem for three representative individuals carrying different time horizons but common retirement goals. The results show the benefits over traditional pension accumulation plans of dynamic strategies based on mixed portfolios of retirement products.

Using a Hierarchy of Funds to Reach Client Goals

Personal finance is not institutional finance; therefore, we believe that there is an alternative mental map that changes the way advisers and individuals think about the unique questions retirees must answer, and offers a hierarchy of funds to reach client goals in any market. We call this alternative mental map modern retirement theory (MRT). MRT suggests that historical long-term averages may not apply in individual client scenarios and seeks to offer a sustainable benefit to individuals. It proposes a perspective on retirement planning that seeks to meet the individual client’s retirement goals under any market condition or life event.

NEUROSURGEON TRANSITION TO RETIREMENT

Recent studies of age-related effects on cognition and performance have raised concerns about the appropriate timing and regulatory surveillance of retirement for surgeons. Little is known about the practice patterns and retirement plans of aging neurosurgeons. Analyses of informed opinions on possible regulatory options are also lacking. During a consensus development workshop conducted at the 2007 Annual Meeting of the Congress of Neurological Surgeons, participants collected data regarding neurosurgeons' retirement plans, reviewed expert background information, and assessed opinions. Participants submitted data and discussion points throughout the session using digital handheld devices. These data were then statistically analyzed, with particular attention to shifts in opinion and emergence of consensus after the presentation of expert material and discussion. Neurosurgeons strongly oppose government regulation of retirement using uniform retirement age regulations. The most favored policy option, initially, particularly among older neurosurgeons, was status quo. After consensus development, the most favored policy option was local regulation by hospital privileging bodies. Neurosurgeon age, but not perceived ability to reach financial retirement goals, significantly influenced opinions. Retirement age is an area of active government regulation in other professions. Neurosurgeons seem to favor a flexible system of regulation based on local and quality standards, rather than national age-based thresholds. The Congress of Neurological Surgeons Consensus Conference process offers a viable methodology for initiating discussion of important policy issues facing organized neurosurgery, engaging the informed input of practicing neurosurgeons, and formulating preliminary strategies for pursuit by stakeholder neurosurgical policy organizations.