Avoid running out of money in retirement

Ivory tower approach may not work in real world
Ivory tower approach may not work in real world © Tomasz Szymanski/

Although academics may spout theories about how best to deal with retirement issues, these studies may have some significant shortcomings as far as how you can actually use them to plan your retirement.

Bonnie-Jeanne MacDonald, a fellow of the Society of Actuaries and a researcher with Dalhousie University's economics department, says that academics are inclined to model things based on assumptions that may be hard to determine. She notes, "It is really hard to model things like taxes and government transfers (such as Social Security) and government credit. So, when academics are evaluating one strategy over another, they almost always do not take that into account when it could be quite important."

For instance, the amount of income retirees will need to maintain their standards of living, expressed as a percentage of their pre-retirement income, is often geared to a one-size-fits-all approach based on certain assumptions, MacDonald concludes in a study sponsored by the Society of Actuaries.

And some of the studies that look at how people draw down their money in retirement are based on a cohort of people who grew up in the Great Depression -- and that level of conservatism may not hold up in the future.


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