Monday, May 24, 2010

The Case for a Modular Approach

Tangible Mental Accounts: Researchers have shown that people tend to divide their money into separate mental accounts for various purposes ( think travel or dining out) and that earmarking savings to specific goals (college savings, for instance) tends to increase savings rates.( investing with purpose) George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, has proposed applying these concepts to retirement. The idea would be that retires have separate accounts for various purposes and use different investment strategies with different levels of risk for each. For policy makers, the idea would be to ask whether the retirement income strategy offers "multiple accounts to facilitate different goals, such as paying the rent or spending money on vacations."