Migrating with Black Swans: Climate Risk and
Retirement Planning

Abstract

This article combines the thoughts of several authors to describe the migration of retirees through the retirement phase of their lives during a time of climate change. Taleb [2007] introduced the concept of the Black Swan, the (hopefully) infrequent but significant disruption of investment returns. Bernstein [2013] discussed sources of risk in portfolio design and the concept of deep risk, the long-term loss of real capital. Frank, Mitchell, and Blanchett [2012], among others, demonstrated how retirees move through retirement, frequently adjusting to changes in market performance and personal expectations of longevity. Nordhaus [2013] investigated the potential effects of climate change on economic performance and equity returns. The Intergovernmental Panel on Climate Change reports outlined many of the possible underlying climate changes that are likely to drive these risks and necessitate adjustment on the part of retirees. These sources, and others, motivate this article’s exploration of climate change, its economic implications, and how retirees might cope as they migrate through their final years. Suggestions are made for how financial planners should prepare themselves and their clients for climate change–related risks.

TOPICS: Retirement, tail risks