# NY Times article on the "spend down" years



## brad (May 22, 2009)

Interesting-looking piece (haven't had time to read it) in today's Times:

http://www.nytimes.com/2010/09/16/business/retirementspecial/16SAVE.html

Geared of course to US readers but the general topic applies here as well.

One choice quote:



> With decumulation, researchers aren’t sure of what people most want to achieve in retirement. It could be maintaining a similar quality of life, keeping financial autonomy, leaving money to children, philanthropy, hanging on to money to cover health expenses or a combination of these options or others. And not all these options would be best served by annuities, said David Laibson, an economics professor at Harvard, adding, “It is not clear how much wealth should be annuitized — that’s the key debate.”


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## MoneyGal (Apr 24, 2009)

It is very clear that 100% annuitization will NOT be the choice of "most" retirees, for a variety of reasons. 

The reason my book is titled "Pensionize Your Nest Egg" as opposed to "Buy an Annuity with your Nest Egg" is that "pensionizing" (a word we made up and then trademarked) is intended to communicate a rational strategy, as opposed to a single action (i.e., "buy an annuity"). 

In fact, the book includes a very detailed description of (what we call) the Retirement Income Frontier, which describes the unavoidable tradeoff in decumulation (=retirement) between more sustainable income in retirement, and a financial legacy at death: every retirement income plan is located somewhere on this frontier, and optimizing or maximizing for one value has a measurable cost on the other. 

And while _researchers_ may not know what all retirees and potential retirees in aggregate want to do in retirement, *individuals* can make choices based on their preferences, and then arrange their affairs to optimize the chance of reaching their objectives.


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## brad (May 22, 2009)

Two other things in this article that made me stop in my tracks:



> Half of people in their 80s suffer from either dementia or significant cognitive impairment that prevents them from making sound financial decisions, Professor Laibson of Harvard and fellow researchers concluded in a 2009 paper. They also found that cognitive decline happened rapidly as people passed age 65, with the prevalence of dementia doubling every five years.


That's an amazing and sobering statistic.



> Hal Ersner-Hershfield of the Kellogg School of Management at Northwestern University and fellow researchers created images of college-age participants that showed how they looked as they aged.
> 
> They then put the participants in a virtual reality environment, showed them either an image of what they looked like now or of what they might look like as they aged, then asked them questions about retirement allocation. Participants who saw the aged image of themselves allocated twice as much to retirement as people who saw their current appearance, the researchers found.
> 
> “Our hunch is that exposure to one’s future self is creating somewhat of an empathic response,” similar to the feelings of protectiveness one might feel when seeing an aged parent, said Professor Ersner-Hershfield.


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## MoneyGal (Apr 24, 2009)

brad said:


> That's an amazing and sobering statistic.


This is an argument in favour of annuitizing (at least the basic minimum you need to live): you no longer need to make decisions about how to manage your money; because you've converted a lump sum to an income stream.


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