Look Beyond Asset Allocation for Retirement Security
Asset allocation is an important part of investing—but it is not the most effective option to ensure financial security in retirement, according to the Center for Retirement Research at Boston College. Rather, other financial planning options are more influential in ensuring savings last throughout a retiree’s lifetime.
Researchers looked at replacement rates—the amount of money needed to replace an annual salary—and the ability of retirees to fully fund them. Thus, the focus was not on maximizing investment returns but on determining what someone could do to ensure their financial security in retirement. Four options were considered: working longer (delaying retirement to a later age), taking out a reverse mortgage, spending less and allocating completely to equities.
Delaying retirement had the biggest impact. This is because it boosts monthly Social Security payments, provides more time to contribute to retirement savings and shrinks the time period for which savings will be tapped. Delaying retirement from age 62 to 67 reduces the percentage of households age 60–70 that are at risk of running out of cash from 74% to 47%.
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