Practical analysis for investment professionals
12 March 2015

Some Surprising (and Not-So-Surprising) Notes on Risks and Happiness in Retirement

The CFA Institute Wealth Management Conference is an annual event covering tools and strategies important to private wealth management, including financial planning, practice management, and client relationship management. The CFA Institute Wealth Management 2020 Conference will be held in Seattle, Washington, on 24–26 March.

What do you think constitutes the biggest risk in retirement?

Is it longevity? Inflation? The market? Reinvestment? Sequence of returns? Fraud? Taxes?

Or our minds?

For Michael Finke, professor and director of retirement planning and living in the personal financial planning department at Texas Tech University, the biggest risk may be a retiree’s grey matter.

During his presentation at the CFA Institute Wealth Management Conference, Finke pointed to some startling results from the Health and Retirement Study (HRS). A longitudinal panel study, the HRS surveys a representative sample of roughly 20,000 Americans above age 50 every two years.

Respondents first complete a test to assess whether they are experiencing clinical dementia (in other words, seriously impaired cognitive decision making), Finke said, and then are asked: Are you managing your own money?

Sixty percent of those who were experiencing clinical dementia said they were still managing their own money, Finke said, while 10% said they were still doing so, but having a little bit of trouble doing it. The remaining 30% said they were delegating the responsibility to someone else.

You can probably see where this is going. Who are these retirees getting assistance from? Did the retiree make a plan early on in retirement to delegate responsibilities to a fiduciary? Or is the person making the financial decisions on their behalf the person who is most convenient? Or someone they “trust,” even though they are experiencing clinical dementia and may not be able to discern who is trustworthy?

This is an area where there are potentially grave risks for retirees.

“It may not be that the biggest risk to a retiree’s portfolio is a bear market,” Finke said. “It may be that the biggest risk to a retiree’s portfolio is a large decline in cognitive ability without a plan and without an awareness that it’s occurring.”

Finke also warned about the risks retirees face in the financial marketplace.

“In the United States, we have a buyer-beware marketplace for products that are very often sold to older consumers. This is insane!” he said. “It’s insane that we allow people to sell products that are not necessarily in the best interest and hold themselves out as experts in the financial services industry to people who are in their 80s and 90s without any fear that they are going to get sued. That needs to change.”

One of the things the industry needs to do, he added, “is protect those who are really least able to monitor those in the financial services industry and decide what is — and what is not — an appropriate product. We need to take that burden off of their shoulders; otherwise we’re going to end up with a predatory financial services industry that essentially caters to those who are older.” (For more on this, see: “Finke: Lack of Fiduciary Protection for Elderly Is ‘Insane’.”)

Finke focuses on an area of research known as retirement living, and his talk was peppered with lots of interesting questions and research.

For example: What makes retirees happy? Does money make people happier in retirement?

“Yes, in fact. quite a bit happier,” Finke said. “And it does seem to be a relatively linear effect. That’s good news: More money means a better retirement. Up to a point. When we get to $3.5 million of investable assets, there is an inflection point. It actually goes down a little bit.”

Other interesting takeaways include:

  • Living within 10 miles of your kids is not a good idea — apparently you may be unhappier in retirement because of it. If your plan for retirement is to move closer to your children, it tends not to work out very well.
  • One of the most important elements in retiree satisfaction is positive relationships, especially when it comes to one’s spouse. (If you think this could be an issue, consider a one-month retirement dry run, and if any issues come up, consider marriage counseling.)
  • Women tend to have larger social networks than men and so when men retire, they have to rely on their wives a lot more to be their primary source of social support. This can be a source of tension.
  • Social interaction is key. One way to think about how you get satisfaction in retirement is as a commodity, Finke said. “Retirement satisfaction is a commodity — you combine goods and services together, your time and your money, combined with other things, like health, to produce an activity, and it’s the activities that provide satisfaction in retirement.”
  • Money itself does not provide happiness. It’s how you use the money and what you combine it with in order to produce the commodity of satisfaction that counts. “If you don’t have health, it doesn’t matter how much money you have, you are not going to have a very satisfying retirement,” Finke said.

To hear more from Finke on longevity trends and risks; planning for cognitive and physical changes in old age as a fiduciary adviser; and avoiding risks and planning for a more satisfying life in retirement, you can watch the archive of his presentation and the question and answer session.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Lauren Foster

Lauren Foster was a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

7 thoughts on “Some Surprising (and Not-So-Surprising) Notes on Risks and Happiness in Retirement”

  1. Enjoyed the post. I am a trust administrator in Lubbock, Texas, home of Texas Tech University and Dr. Finke. Very relevant topic.

    1. Dear Courtney

      Thanks for visiting our blog. Glad to hear you enjoyed the post.

      All the best,

  2. Paul Graham says:

    Wife and I graduated from Texas Tech in 73. She retired 2 years ago from teaching, and I plan on retiring this year from Sales career.
    We live in Pecan Plantation and the motto seems to be- Get Involved!
    About 6,500 in the retirement community next to Granbury.
    Everything from 2 golf courses to Bridge to Habitat, etc.
    We have 2 financial advisors, and after reading this- glad we do.
    Thanks for posting.

  3. Thanks for sharing this relevant presentation from @FinkeOnFinance. As a Fiduciary who’s served the Elder Community for 26 years, we speak #Alzheimers, #Dementia and strive to protect the vulnerable; I did not know the numbers (6 in 10) were this bad.

    Jonathan Smith

  4. Jonathan Squire says:

    You assert:
    Living within 10 miles of your kids is not a good idea — apparently you may be unhappier in retirement because of it. If your plan for retirement is to move closer to your children, it tends not to work out very well.

    This is the opposite of what I would have anticipated. I could not find the evidence to support this claim. Can you please direct me to the reference?

  5. Dear Mr. Squire
    Prof. Finke’s slide does not include a source for this information, but in his remarks (about 30 minutes into the webcast), when he says “living within 10 miles of your kids; not a good idea,” he notes “this is 20,000 retirees”, which would seem to be a reference to the Health and Retirement Study. You may want to follow up directly with Prof. Finke ( to find out where, specifically, he found this data point.
    Thanks for reading Enterprising Investor.

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