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,

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


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