At CFDD 2011, Peng Chen Emphasizes Human Capital

While, financially, older investors have more assets than younger investors, in this regard younger investors are richer. As Chen (left) noted, an investor’s ability to work and to continue earning money “directly affects their capacity to take on risk.” Typically, this is also their largest asset.

Clients’ total economic wealth includes both their human capital and their accumulated assets.

“You don’t have to like annuities, but for certain investors, there’s some benefit,” Chen said. There’s a new income frontier that addresses longevity risk, he said. In the average scenario, insurance doesn’t pay off in the long run, Chen said; you don’t decide to file a claim with your homeowner’s insurance and start a fire in your house, he joked. However, in tail scenarios, the longer the tail, the higher the payoff will be.   

Chen outlined some scenarios that warrant looking into annuities for clients. Retirees who want to leave money to their heirs shouldn’t buy an annuity he said. But, those who believe they have a high probability of a long life can use a greater percentage of their assets to purchase an annuity.