What's Your Retirement Personality?

According to research by Drs. Alejandro Murguia and Wade Pfau, there are four main ways people nearing retirement think about money. ¹

1. Time-Segmentation Approach

The “time-segmentation” approach mentally places your money and assets into three buckets based on when you need to access them. Money you’ll need quick access to would go in a short-term bucket. You’d avoid investing this money in risky products because if the market is down when you need to access those funds, you’ll lose money. Instead, you’d choose lower-risk assets such as savings accounts, CDs, and money market accounts.

Money you don’t need to access quickly goes in a long-term bucket. This money can be invested in riskier products because if the market crashes, you don’t need to withdraw from that bucket and can therefore wait for the asset values to recover before converting them to cash. Having a long-term bucket gives you a shot at beating inflation with your investments.

The third, intermediate bucket, is for income you’ll need within three to seven years. You’d likely pick a medium-risk strategy for the intermediate bucket. Too safe, and you might not realize sufficient returns, while investing in overly risky products exposes you to the possibility of losses that could result in an income shortfall.²

2. Risk-Wrap Approach

At the other end of the retirement personality spectrum is the “risk-wrap” approach. Someone favoring this approach doesn’t want to think about moving money between buckets, and they don’t want to take many chances with their nest egg. Rather, they want the retirement equivalent of a steady paycheck.

This retirement personality type will likely favor retirement assets with downside protection built in. Structured notes, insurance products, and deferred annuities that return modest gains during market upswings but are insulated from market downturns are products they’re likely to favor.

3. Protected-Income Approach

This personality type is a blend of the first two, leaning toward the risk-wrap approach. A “protected-income” retiree wants to know the income from their retirement savings will remain level throughout their retirement. They’ll tend to favor skipping longer-term, higher-risk investments in favor of more predictability

4. Total-Return Approach

A “total-return” personality type doesn’t need to know that they’ll be withdrawing the same amount from their accounts year-over-year. They target ultimate retirement success and adjust their income plans frequently to keep the probability of that success high. This person is more likely to be willing to invest in higher risk/reward assets during retirement.

By understanding the retirement personality differences, we can work together to arrive at a plan that matches your personality. Retirement plans matching your personality can also make retirement more enjoyable for non-financial reasons. If your retirement strategy makes you fundamentally nervous or upset, even if it’s a sound strategy, you will likely spend a lot of your time being anxious about it. Let us work together to make retirement enjoyable!


1 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4011297
2 https://www.kiplinger.com/retirement/retirement-planning-whats-your-retirement-personality