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Household financial planning strategies for managing longevity risk

Date

2018-09-19

Authors

Bajtelsmit, Vickie L., author
Wang, Tianyang, author
Financial Planning Review, publisher

Journal Title

Journal ISSN

Volume Title

Abstract

This study examines how longevity risk, in conjunction with other postretirement risks, impacts retirement consumption decisions and retirement wealth needs. We develop a theoretical model that directly examines the relationship between longevity risk and consumption/savings, and empirically test these theoretical implications by simulating retirement outcomes for representative households, including longevity, inflation, investment, health, and long‐term care risks. Our study shows that the top third of households by longevity need approximately 20% more retirement wealth than those households who live only an average life span. Investigations of various risk mitigation strategies suggest that combination strategies, particularly those that include delayed retirement, can significantly reduce the retirement wealth target. This research provides valuable new insights on household financial planning strategies for managing longevity risk.

Description

Includes bibliographical references (pages 24-25).
Published as: Financial Planning Review, vol. 1, no. 1-2, September 2018, e1007, https://doi.org/10.1002/cfp2.1007.

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Subject

financial planning
household risk management
longevity risk
retirement plan

Citation

Associated Publications