Full Citation
Title: Planning for a More Expensive Retirement
Citation Type: Journal Article
Publication Year: 2017
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Abstract: Recent asset pricing studies have suggested that demand for stocks since 1980 has driven expected returns below their historical average. The current yield of risk-free assets in the U.S. is also well below historical bond yields. This decrease in bond yields coupled with increases in longevity has doubled the cost of funding a real dollar of income in retirement since 1980 for a 65-year-old retiree. • Many common financial planning practices are sensitive to asset returns, and advisers need to understand the challenges clients will face if high asset prices persist. • Results from a life cycle planning model showed that savings rates would need to rise sharply for households hoping to maintain the same standard of living in retirement if real asset returns are low. • An important finding from this study is that a low-return environment would have a negative impact on client spending throughout their life cycle. • Advisers may need to modify expected returns in planning software to provide clients with more realistic projections on meeting long-term spending goals. This study provides the numbers needed to re-adjust the retirement expectations.
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Authors: Blanchett, David; Finke, Michael; Pfau, Wade, D
Periodical (Full): Journal of Financial Planning
Issue: 3
Volume: 30
Pages: 42-51
Data Collections: IPUMS CPS
Topics: Aging and Retirement
Countries: United States