Understanding Your Psychonomics Risk Could Change the Way You Invest

Shakespeare wrote, “This, above all else, to thine own self be true.” Your financial profile should be an honest and dispassionate approach to how you treat money. It should include a risk-tolerance test, an information section on your holding’s beta risk, expense loads, tax treatment and timeline goals. When you complete your financial profile, it acts as your guide in all money decisions and transactions. It helps you resist the emotional—and often irrational—actions of the past and helps you establish yourself as a disciplined investor. One of the biggest risks to a portfolio or a retirement plan is the bad behavior of its owner. Establishing a financial profile can mitigate, if not eliminate, this risk.

One risk, perhaps the biggest risk in retirement is longevity. Longevity is not only the biggest risk, but also a risk multiplier of every other retirement risk, and the individuals who suffer the most because of longevity are women.

It is estimated in a marriage the husband precedes his spouse 87 percent of the time. The household budget and retirement resources are almost always predicated on both spouses. When the husband dies, his wife loses part of his Social Security benefit. She loses his tax exemption and standard deduction. The results could trigger a premium hike in Medicare, increased higher taxes and less Social Security income. And if she lives longer, into her 90s or early 100s, it only exacerbates her financial situation. And none of this includes assisted home living or nursing home care.

Defending against the impact of longevity for the surviving spouse has become the new challenge for financial advisors and insurance professionals.