Retirement Income Planning and the “Language of Longevity”
There might be a better way to talk to clients about how long their retirement portfolios will last. To start, what if financial advisers stopped using shortfall (or ruin) probabilities as the guiding risk metric for retirement income planning?
Moshe Milevsky, a professor at York University, proposes the idea of comparing the client’s life expectancy with the longevity of the client’s retirement portfolio — a much more approachable way to communicate with clients, who are accustomed to thinking about their own longevity in units of time.
In his Viewpoint “It’s Time to Retire Ruin (Probabilities),” published in the March/April 2016 issue of the Financial Analysts Journal, Milevsky suggests that financial advisers provide clients with the number of years their retirement portfolio will last, relying on a framework that is clearly communicated and simple to understand.
Barbara Petitt, CFA, managing editor of the Financial Analysts Journal and head of journal publications at CFA Institute, recently interviewed Milevsky.
“We should back off a bit from ‘shortfall’ and ‘failure’ probabilities, and we should focus more on using the language of longevity,” Milevsky says.
“Since individuals have an innate ability to understand longevity — you’re expected to live 25 years, you might live 30 years — they think about retirement already in units of years and longevity. Let’s convert the portfolio problem into the same units of years and longevity.”
Milevsky also shared his thoughts regarding the major challenges on the horizon, including the “new normal” of the current low-interest rate environment, the declined use of defined benefit pension plans, and the considerable amount of time most of us will be living in retirement.
For more information, read the full Viewpoint by Milevsky. And for more from the Financial Analysts Journal Author Interview series, be sure to check out our archives.
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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.
Let us grow the good and save our oceans.
We are stronger together.
Dear friends and protectors of our oceans,
With global warming, increased shoreline development, pollution, infiltration of plastic and the mass extinction of species that have survived millennia, the mandate to protect our oceans has never been as urgent as it is today.
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Examples of corporations included and excluded from the Global Blue Ocean Fund investable stock universe:
American Airlines – INCLUDED
American Airlines is banning plastic straws and stirrers on their flights and is also planning to phase out single-use plastic in their lounges around the world. This means the end of straws being served with drinks while plastic water bottles and flatware will no longer be offered, and reusable bags will pack up to-go orders. American Airlines expects this new initiative to eliminate 71,000 pounds of plastic waste annually.
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The Atlanta-based beverage behemoth is the top producer of plastic rubbish making its way into the world oceans, wreaking havoc on wildlife and sending plastic particles into the food chain.
Our Ask
We would greatly appreciate it if you could assist us in introducing the Global Blue Ocean Fund investment concept to the public by being a proud supporter. We will be adding a section to our website homepage displaying the logos of all the environmental organizations that stand behind our initiative. If our cause is important to you, please email some words of encouragement (this would go a long way!) and your official logo (either Jpeg or PING version) which we will proudly display on our website prior to our press release crossing the wire next week.
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I would greatly appreciate the opportunity to contact you directly at a time that is convenient for you. Alternatively, you may reach me on my cell at any time.
Thank you for helping us grow the good and for fighting to preserve our oceans – we cannot succeed without your support!
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Wish us luck!
Alexis Klein, Co-Founder, Global Blue Ocean Fund
Globalbluefund.com
[email protected]
647.223.1001