A Framework for Analyzing and Managing Retirement Risks

This paper provides an overview of new approaches and products to help people assess and
meet their old-age security goals. We first examine retirement planning models and
conclude that many do not yet incorporate key types of uncertainty deemed essential to
economists and finance experts, including cross-asset correlations. Many financial planners
also fall short of using the full range of tools of risk management – hedging, insurance, and
diversification – to guide those making retirement plans. Turning to innovation, we
examine several financial products that appear to offer new opportunities to protect against
old-age risk. These products include inflation-linked annuities, survivor bonds, long-term
care insurance, and reverse annuity mortgages. Some of the innovations arise from
bundling existing insurance products. We also suggest that the arrival of new products to
market that could protect retirement income have been slowed by market failures and
institutional rigidities as well as information barriers; these have limited international
diversification in investments, among other outcomes. There remains a profoundly
important role for additional economic and financial research to better inform stakeholders
on the costs and benefits of developing innovative products for retirement security