Healthy baby boomers who anticipate a long retirement should move money from safer investments into riskier equities and purchase longevity
insurance, according to a new study by Brandes Institutes.
The study found that investors who use this unconventional strategy will reduce the risk of outliving their assets.
Sixty percent of post-retirement disbursements from defined contribution plans
come from investment results after retirement, which is not ideal during periods when bond prices are low, Brandes said.
The goal is to maximize investment returns during the retirement years while reducing the risk and the consequences of running out of money
, the study said.
"Retirees in good health have a risk of outliving their assets regardless of their investment strategy. Our study suggests they may do better by aiming for superior long-term returns in their investment portfolios and dealing with money death risk separately," said Barry Gillman, Research Director, Brandes Institute Advisory Board. "This contradicts the conventional wisdom, which tells people to play it safe when they retire by moving a large portion of their portfolio to bonds.”
Boomers should purchase longevity insurance that begins paying benefits only when the holder reaches an advanced age. The insurance is purchased with a single premium and pays a yearly benefit for life. If the person dies before they reach a certain age, the premium is sacrificed, according to the study.
"While losing the entire premium sounds extreme, the trade-off is that the income is substantial once the vesting age is reached," said the study.