The Research Behind the System

My decision to design and use the FAILSAFE RETIREMENT™ System for our retirement income planning was caused by two events.

First, like many baby boomers, we were rocked by the calamitous economic events of 2008-2009. I was determined not to allow another devastating blow to our retirement nest egg.

Second, I had been reading books, papers and commentary about retirement investing authored by Zvi Bodie, a Professor of Finance at Boston University. To put it simply, Prof. Bodie has convinced me that relying on the stock market to support a sustained and reliable retirement income is too risky for most retirees. That includes me.

I am not going to repeat all of Prof. Bodie’s detailed and persuasive research and arguments here. If you are skeptical about the constant emphasis on long term equity investing by the financial services industry, follow your instincts and look for alternatives.

But don’t just talk to people in the investing industry, who make a living selling us investments that create risk!

I recommend that you dig into Prof. Bodie’s work. A good place to start would be this recent interview in Money Magazine where Bodie tells us that conventional financial planning has it all wrong:

The standard models that are used to give investment advice to millions of Americans are fundamentally wrong. We’re told that over time, stocks get less risky, but that’s bull. Stocks are always risky — whether in the short or long run. Prices dropped by 37% last year. While improbable, there’s nothing to say they couldn’t drop by that much again next year or the year before you retire. And diversification doesn’t take away that risk. That’s why retirement money belongs in truly safe assets whose value won’t go down — not in stocks.

Another good read is Prof. Bodie’s book “Worry Free Investing.” (Let me emphasize again that Prof. Bodie has not endorsed or approved the FAILSAFE RETIREMENT™ System or FailsafeRetirement.com. He is not affiliated with either in any way. I mention him here only because his work inspired me to create this System.)

Another article that opened my eyes to the mythical dominance of equity investing in retirement planning is this “retirement portfolio showdown” comparing the theories of Prof. Bodie and Prof. Jeremy Seigal of the Wharton School. Prof. Seigel is a well-known proponent of long-term equity investing.

If you are an audio-visual learner, I urge to you to view the following video presentations by Prof. Bodie.

In this first video, Prof. Bodie rejects and debunks the myth that investing in stocks over the long term is less risky and tells us that a portfolio of TIPS and I-Bonds is the right place to start:

In this second video, Prof. Bodie discusses TIPS as a retirement investment:

In this third video, Prof. Bodie remind us that we are on our own in making sure that we are on a secure path to an acceptable retirement lifestyle:

I hope that you found these enlightening.

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