Big Picture Helps with Retirement Finances

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The prospect of retiring opens a Pandora’s box of questions. But one big question dominates all the others: How will I manage my finances when I retire?

This is a vexing problem, and baby boomers could use some help thinking it through. To ease the process, a team at UCLA and Cornell University led by David Zimmerman, a UCLA doctoral student, created an online decision tool. In an experiment, they found that the tool might help future retirees understand how to smooth out their income over many years and make their savings last.

The results are preliminary, and the researchers are refining their analysis. But for the initial experiment, they recruited 400 people, ages 40 through 63. The participants were instructed to use the tool to make three big retirement decisions: starting Social Security, choosing a 401(k)-withdrawal strategy, and deciding whether to purchase an annuity. Their decisions would be on behalf of a 60-year-old who is single and plans to retire in two years. He earns $55,000 and has $250,000 in savings to work with.

The participants were split into two comparison groups. One group received immediate feedback on the impact of each separate decision. For example, when the participants picked a Social Security starting age for the hypothetical person, a chart showed a horizontal line tracking the fixed annual benefit locked in by that decision.

When they moved on to another page and selected a plan for 401(k) withdrawals, a chart showed the age when the savings would probably run out. The final decision was whether to buy a deferred annuity with some portion, or all, of the 401(k) assets. The chart on this page displayed the fixed income the annuity would generate every year for as long as the person lives.

The participants were encouraged to change their decisions as much as they liked to see how a change affected that particular source of income. But the researchers suspected that seeing each decision in isolation doesn’t help to clarify how various decisions work together to determine total retirement income over time.

So, the second group got to see the big picture. The chart in this case displayed the impact of any single decision on the annual income from all sources.

For example, when they set a Social Security age, the tool integrated the financial impact of that decision with any previous decisions about the 401(k) and the annuity. The web page also displayed the probability the individual would have savings left when he turns 85.

The aggregated estimates made a difference. This group’s income from year to year was noticeably more stable and predictable than the people who only saw the impact of each decision in isolation. The aggregated approach also boosted individuals’ confidence in their decisions.

The researchers acknowledged their online tool “is not a perfect solution.” Nevertheless, the integrated approach helps people evaluate the financial tradeoffs involved in retirement planning.

To read this study, authored by Hal Hershfield, Suzanne Shu, Stephen Spiller, and David Zimmerman, see “Broad Framing in Retirement Income Decision Making.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

Ken Pidcock

An excellent resource on managing finances in retirement is the Society of Actuaries report, “Viability of the Spend Safely in Retirement Strategy.” It offers a clear path along with careful consideration of variations.

Wendy Weiss

Excellent idea. People need to understand how their early decisions impact their buying power over the rest of their lives (or a reasonable facsimile thereof, as they used to say).

Thanks for writing about this

Stephen Chen

Enabling people to see how one decision impacts the rest of their plan has been implemented on for the past few years. Over 130,000 people have built plans over the past 3 years and are using this approach today.


The tool would be stronger if it included taking out a reverse mortgage as a fourth big retirement decision.

    Stephen Chen

    Hi Bob – using home equity in different ways is a key part of integrated planning, since for many people their home equity is half of their net worth at retirement. On our platform people can model downsizing, relocating, selling & renting, refinance and reverse mortgages and see the impact to their lifetime income – including federal and state level taxes.

Leah Jones

Thank you for sharing this interesting research! It is important to see the big picture to make an informed decision about your financial future. I think you can take the help of financial consultants as well in this field. They have detailed knowledge about several investment plans and their insights can be quite beneficial.

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