%0 Journal Article %J Journal of Financial Planning %D Forthcoming %T Risks in Advanced Age: A Review of Research and Possible Solutions %A Michael A. Guillemette %K Cognitive Ability %K Longevity %K Risk Factors %X • This paper reviews both published and emerging research on different risks retirees face and possible solutions financial planners can use to help clients overcome behavioral hurdles. • Risk assessment questions that measure loss aversion, as well as reducing myopic behavior, can help keep clients in portfolios that align with their preferences. • A preference for certainty has been observed in advanced age and older defined contribution investors exhibit equity-varying risk aversion, so client risk preferences should be reassessed later in life. • Clients face declining cognitive abilities over time that correspond with a decrease in investment performance and financial literacy skills. • There is in inclination for older people to reject evidence of declining skills, but if financial planners make clients aware of their declining cognitive and financial literacy abilities before retirement they may be more willing to choose simplified and satisfactory solutions. • A retirement consumption puzzle has been observed as wealthy individuals do not decumulate portfolio assets efficiently during retirement and therefore retirement income models may be overstating retirement living expenses. • Wealthy people are living significantly longer than their less wealthy counterparts, creating the need for retirement assets to last for an extended period. • Longevity “insurance” can be an effective way to help clients spend more during their early retirement years, while also protecting them against the tail risk of running out of money prior to death. However, conflicts of interest within adviser compensation models may hinder the demand for longevity insurance. • A financial plan that includes ways the adviser and client can work together to overcome inevitable risks in advanced age should improve the likelihood of helping clients achieve both their financial and life goals. %B Journal of Financial Planning %G eng %R 10.2139/ssrn.2932336 %0 Report %D 2021 %T A behavioral understanding of stock market return expectations: from evaluation frequency and financial planning horizon perspective %A Liu, Yi %A Michael A. Guillemette %A Gray, Blake %K behavioral finance %K Evaluation frequency %K financial planning horizon %K stock market return expectations %K stock ownership %X The continued shift to defined contribution plans and individual investment responsibility has made understanding what motivates individual behavior critical. Using 2010-2016 panel data from the Health and Retirement Study, this paper evaluates how stock market evaluation frequency and investment horizon influences stock market return expectations, which in turn influences stock ownership. Those who follow the market somewhat closely believe the probability that the market will fall or rise by more than 20% next year is higher than those who do not follow the market. Those whose financial planning horizon is one year or less have higher expectations the stock market will lose 20% or more next year. Overall expectations of high volatility (average probability the market rises or falls by 20% or more next year) are increased by somewhat closely following the stock market and reduced by longer financial planning timeframes. Higher expectations of the market losing 20% or more results in lower rates of stock ownership. The results of this study contradict the neoclassical assumption that more informed investors would have more accurate stock market expectations. Instead, investors who evaluate the market more frequently increasingly overestimate the probability of both extreme gains and losses. As market expectations influence stock market participation and decision making, financial professionals can help clients reduce myopic and hyperbolic estimation and encourage stock ownership by reducing evaluation frequency and focusing on longer-term planning. %G eng %U https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3906757 %0 Journal Article %J The Journal of Retirement %D 2021 %T Post-Retirement Labor and Non-Retirement Risky Asset Allocation %A Curnutt, Gary %A Sun, Qi %A Michael A. Guillemette %K legal/regulatory/public policy %K performance measurement %K Retirement %K risk management %X This article studies how post-retirement labor is related to non-retirement risky asset allocation. By using panel data from the 1992–2018 Health and Retirement Study, this article empirically finds a negative relationship over time between non-retirement risky asset allocation and post-retirement labor. Furthermore, this article explores the forced retirement risk (a type of labor income risk) for the post-retirement labor group. Descriptive findings indicate that members of the post-retirement labor group have a greater risk of being forced to retire, and the trend of forced retirement risk is inversely related to equity returns. This latter finding suggests a potential correlation between forced retirement risk and stock returns. If an individual’s human capital is at greater risk or becomes more stock-like (i.e., labor income risk correlates with stock returns), then investing in fewer risky assets would be justifiable. When both of these findings are accounted for, they corroborate the findings of this article: post-retirement labor is negatively associated with risky asset allocation. %B The Journal of Retirement %V 9 %P 112-123 %G eng %N 1 %R 10.3905/jor.2021.1.087 %0 Journal Article %J Practical Applications %D 2021 %T Practical Applications of Post-Retirement Labor and Non-Retirement Risky Asset Allocation %A Curnutt, Gary %A Sun, Qi %A Michael A. Guillemette %K non-retirement financial assets %K non-retirement stock accounts %X In Post-Retirement Labor and Non-Retirement Risky Asset Allocation, from the Summer 2021 issue of The Journal of Retirement, Gary Curnutt, Qi Sun, and Michael Guillemette, researchers at Texas Tech University’s School of Financial Planning, focus their study on older individuals engaged in post-retirement labor. Traditionally, earned labor is viewed as a low-risk asset that substitutes for bond-like assets in one’s portfolio and is balanced against riskier assets like stocks. However, the authors push back against this traditional view, cautioning that post-retirement labor earnings may not be a suitable substitute for risk-free assets.Using data from the 1992–2018 Health and Retirement Study (HRS), the authors look at the value of non-retirement stock accounts relative to all non-retirement financial assets. They find that those working post-retirement invested in a lower percentage of stocks than retirees do. The authors suggest that this reduction in risky assets may in part be explained by the high risk of post-retirement labor income. Due to the high-risk nature of post-retirement labor and the increasing likelihood of forced retirement, the authors urge advisors to consider reducing the weights of risky assets in the portfolios of those who return to work after retirement. %B Practical Applications %V 9 %G eng %N 2 %R 10.3905/pa.2021.pa473