EXECUTIVE SUMMARY

  • Behavioral science has helped encourage better behaviors for many investors who are accumulating savings for retirement. This paper investigates the application of behavioral science to decumulation to help investors make better choices and maintain their quality of life in retirement.
  • PIMCO conducted a proprietary research study, collecting more than 750 responses from affluent and high net worth investors in the U.S. age 55 and older.
  • The results identify key behavioral influences linked to retirement decisions, including overconfidence, loss aversion, the relevance of nonmarket risks and the treatment of legacy goals. The study also explored potential “nudges” that might incline retirees to naturally fall into more optimal investing and spending behaviors, such as having reliable cash flows, spending flexibility and dual portfolios.
  • Finally, we reflect on how these connections inform PIMCO’s approach to retirement decumulation and how a behaviorally compatible plan can help investors balance important trade-offs to more fully enjoy and maximize retirement.

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The Author

Rene Martel

Head of Retirement

Jennifer Gongola

Behavioral Science Research Manager

Sean Klein

Client Solutions & Analytics

Avi Sharon

Product Strategist

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Disclosures

Sydney
PIMCO Australia Pty Ltd
ABN 54 084 280 508
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Sydney, NSW 2000
Australia
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PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs.

A bond ladder or “targeted maturity” bond portfolio is only one potential income strategy and may not be the best solution or suitable for all investors. Income replacement needs may vary by household. An investor should consider and discuss how best to address their income needs with their financial and tax professionals.

The retirement allocation framework presented here is based on what PIMCO believes to be generally accepted investment theory. It is for illustrative purposes only and may not be suitable for all investors. The retirement allocation framework is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial and tax advisors to determine the most appropriate allocations for their financial and tax situation, including their investment objectives, time frame, risk tolerance, savings and other investments. Fixed income is only one possible portion of an investor’s portfolio, which can also include equities and other products. Investors should speak to their financial advisors regarding the investment mix that may be right for them based on their financial situation and investment objectives.

The analysis contained in this paper is based on hypothetical modeling. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program or strategy. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading or modeling does not involve financial risk, and no hypothetical example can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses, are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved. Return assumptions are for illustrative purposes only and are not a prediction or a projection of return.

Exhibits are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product. It is not possible to invest directly in an unmanaged index.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

This material contains the current opinions of the manager and such opinions are subject to change without notice.  This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. It is not possible to invest directly in an unmanaged index. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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CMR2021-0625-1700753

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