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Don’t Have Enough Money to Retire? Here’s What To Do.

Seth Jentner04/24/2012

If people nearing retirement do not have enough money to retire, what should they do?  Should they consider investing in risky investments in order to compensate for inadequate savings?

Behavioral researchers have discovered that during the final races at horse tracks, gamblers tend to bet on long shots.  In Las Vegas, there is a pronounced tendency for people to place long shot bets near the end of the day.  Most researchers attribute this to the fact that gamblers have, on average, lost money during the day, yet they desire to go home a winner.

While this observation may not surprise frequent visitors of casinos and race tracks, it challenges traditional financial theory.  Less wealth is generally thought to lead to a reduced willingness to bear risk in one’s investment portfolio.  However, recent findings indicate that some investors tend to seek more risk when they are “behind” or losing.

We have seen this behavior when preparing retirement income analyses for people.  When our analysis indicates that a couple may have inadequate retirement savings, some want to compensate for insufficient savings and investments by increasing their exposure to riskier investments.  We do not recommend this.

This behavioral tendency can prompt seniors to fall prey to investment sales pitches that sound too good to be true.  Investment pitches that provide “great upside opportunity with guaranteed downside protection” are made by unscrupulous sales people.

Remember, if something sounds too good to be true, it is too good to be true.  There is no short cut to prudent investing.  Broad diversification into a risk appropriate portfolio of cash, bond, and stock index funds, transparent investments that you understand, and low cost all contribute to investment success.

Remember:  What happens in Vegas should stay in Vegas!

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