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4 J. Retirement Plan. 21 (2001)
Spending Your Retirement in Monte Carlo

handle is hein.journals/jrlrp4 and id is 21 raw text is: Retirement Planning/January-February 2001 Spending Your Retirement in Monte Carlo, By Moshe Arye Milevsky, Ph.D. Moshe Milevsky examines the interaction between age, investment, and financial risk. He provides insight into investment strategies for retirees and explains that they can still include equities in their investment portfolios. Happy 65th birthday, Mr. Carlyle, you tell one of your favorite clients on the phone. It's now time to sell all your stocks and put the money in safe term deposits and savings bonds. After all, at your age, you can no longer afford to be taking those kind of risks. I certainly hope you never make such a ridiculous phone call. But the underlying assumption-that retirees cannot afford to take finan- cial risks-seems to be widespread among the investing public. The debate on this issue is di- vided. On the one hand, retirees supposedly have a shorter invest- ment horizon and, therefore, incur the risk of not being able to re- coverfrom initial losses by owning a portfolio heavily weighted in equities. On the other hand, by shifting the retirees' investment assets to fixed-income products, especially with current interest rates at historically low levels, the resulting lower income stream could potentially jeopardize their standard of living. In this article, the pronouns he, his, and him are intended to include the feminine, as well as the masculine, gender. Obviously, before we begin any discussion of investment strate- gies for retirees, we must determine the extent to which they are dependent on their finan- cial assets to sustain a standard of living. In other words, we must conduct a needs analysis. Per- tinent questions would include: What standard of living would they like to maintain during their retirement years? Do they want to travel the world? Will they stay at home? These questions may not be as easy to answer as they seem. They certainly involve mak- ing important assumptions about lifestyle preferences and market prices. But the bottom line is that your client, with your help and input, must estimate how much he will require on an annual ba- sis to maintain a desired standard of living in retirement. Ideally, this Moshe A. Milevsky, Ph.D., is a Finance Professor at the Schulich School of Business, York University Toronto, Canada, and is the Director of The Individual Finance and Insurance Decisions (IFID) Centre. He can be reached at milevsky@yorku.ca. 02000 Moshe Arye Milevsky U

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