There is a looming retirement crisis, as individuals are increasingly being asked to take responsibility for their own retirement planning and a majority of these individuals are financially unsophisticated. Yet, these individuals are being tasked with the responsibility for three complex, interconnected decisions: how much to save, how to invest, and how to decumulate one’s portfolio at retirement.

A commonly-accepted retirement goal for a healthy pension is for it to sustain the relatively higher standard-of-living of the latter part of one’s working life throughout retirement (and that they do not outlive their assets). Compounding the earlier noted challenges, current financial instruments and products (e.g. T-Bills, TIPs, or Target Date Funds) are risky because they focus on the wrong goal —wealth at retirement, as opposed to how much retirement income can be guaranteed to support pre-retirement standard-of-living. Moreover, while annuities are an effective means for providing income in retirement with longevity protection for those not in a pension plan, they are too illiquid and inflexible to employ during the accumulation period. Financial innovation and a change in the metric for measuring retirement success could address some of these challenges and help individuals achieve their retirement goals—a financially and socially desirable outcome for any country.

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