Three Essays on Managing Risk in Retirement
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Individuals face a number of risks when entering retirement, such as unknown life expectancy, variable medical expenses, and uncertain financial market returns. Understanding these risks in advance will allow retirees to pursue appropriate risk management strategies to reduce the likelihood of experiencing negative events that could jeopardize the retirement period. Unfortunately, many retirees either do not understand the risks that they face, or are ill-prepared to handle these risks when they inevitably arise. In this dissertation, I provide new insights into the dynamic relationship between consumer knowledge, risk exposure, and insurance coverage. The first essay provides evidence that many elderly individuals do not understand the risks associated with unknown late-in-life medical expenses, such as nursing care. When educated, many retirees indicate an increased willingness to purchase a suitable insurance policy as a hedge against the risk. The second essay finds that a small percentage of retirees are insured against multiple retirement risks, and that this behavior is associated with increased financial wealth and successful retirement outcomes. Although insurance can provide a hedge against a multitude of financial risks, the third essay suggests that life satisfaction in retirement is about more than material wealth.