Commentary MARK SHEMTOB
The Retiree Nest Egg—Navigating the Risks
IT IS COMMON KNOWLEDGE THAT BABY BOOMERS are currently on a quest to uncover the optimum strategy to employ their nest
eggs during (and to a certain extent after) their retirement years. It is
also well-known that insurers, mutual funds, broker-dealers, and financial advisers recognize this large and profitable opportunity. Consequently, they offer an array of retiree-focused products and strategies.
Our profession is also involved in
this important social issue. Millions of
seniors in poverty would create an enor-
mous financial strain on society. The
Academy explores this challenge at the
public policy level through the work of
various committees and task forces. The
Lifetime Income Task Force takes on
this topic directly. The Pension Com-
mittee, Social Security Committee, Life
Committees (with annuity focus), and
the Aging Task Force address it as well,
though less directly. Committees that
focus on Medicare and long-term care
insurance have a tangential view because
financial retiree security is enhanced by
adequate medical and long-term care in-
surance. Many of us at our day jobs help
to create and monitor the products and
systems used in tackling this challenge.
Lack of a Single Holy Grail
It would be convenient if there were a
single optimum approach that could effectively satisfy various retiree needs
and goals. Or to put it differently, minimize the “risks” of not satisfying these
needs and goals. The complexity lies in
the varying personal circumstances integrated with the types of risks being
faced. In response to these risks, the financial services industry has created
and marketed a variety of products and
strategies. Unfortunately many retirees
remain confused as how to best to utilize
these products and strategies to navigate
Though there may not be a single
uniform solution, all retirees—through a
careful analysis of their circumstances—
can make informed decisions in the use
of their nest egg to mitigate the various
risks. However, before we address some
of these key decisions, we need a better
understanding of the following:
1. What are retirees’ risks?
2. What are the various approaches used
to utilize the nest egg?
3. What are some key individual circumstances that must be considered?
4. How can a retiree mitigate the risk of
living far beyond life expectancy?
5. How should a retiree address the financial risks associated with custodial
and health care?
We will look at each of these key
questions in turn.
What are some key financial risks that retirees should consider? Note that some
of these are not applicable to certain retirees and will vary in importance from
retiree to retiree. There may be other financial risks to consider.
1. Lack of sustainable income payable
for an uncertain life expectancy. Many
consider this the primary risk retirees IST