Retirement risks in the RIA world and how to manage them

investmentnews.com:

When it comes to the different risks that surround retirement planning, advisors tend to focus on market risk. However, there are two more that shouldn’t be ignored: longevity risk and sequence of return risks.

These were among the takeaways for attendees at the recent RIA LABS webinar, Fee-based Insurance & Annuities. Hosted by InvestmentNews, it featured views from various experts, advisors and executives from Jackson, Boston College, Apollon Wealth Management, DPL Financial Partners, RISA and Allianz.  

Longevity risk has to do with people living longer.

“With regard to the severity of longevity risk, looking at it quite simply, is your money going to last as long as you do?” asked Glen Franklin, assistant vice president of RIA and lead gen strategy and research at Jackson. “Fear of running out of money in retirement is the No. 1 thing that [clients] worry about retirement. Fifty percent of Americans are not in a place to save for retirement in the first place so that makes complete sense.”

Gal Wettstein, senior research economist at Boston College, said one of his former colleagues ranked various risks to retirement security.

“He found that longevity risk was the most severe of these risks in terms of how much rational people should be willing to pay to eliminate the risk … In particular, he found that single men should be willing to give up about a quarter of their retirement savings to eliminate longevity risk,” Wettstein said.

Meanwhile, according to recent studies, the average age at which people retire has risen three years over the past 30 years. 

“It’s a combination of improved health and the fact that Social Security retirement ages have increased, as well as the increased longevity,” Wettstein said. 

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