hYPERBOLIC DISCOUNTING

‘Preference for a smaller reward sooner than a larger reward later’

We often live as though we’re likely to be run over by a bus tomorrow. This short term outlook can have serious consequences for retirement planning. For example, taking too much income too soon. This could be fuelled by a false optimism in investment markets or underestimating longevity.

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Make your clients aware of the facts:

  • Nearly 40% of Australians have exhausted their pension pot by age 75 and pension savings in the US typically last just 17 years.
  • A 65 year old man in the UK has a 50% probability of living to 90. A 65 year old woman has a 50% chance of living to 93.
  • A sustainable drawdown income has been assessed as 4% in the US, but  this has been challenged in the UK. Data suggests this should be nearer 3% for UK retirees.

Ask clients how they’d feel if they spent all of their pension savings?