Hickock & Boardman Retirement Solutions

Counter Risk Aversion with Targeted Education

Mon, 07/27/2015 - 05:10 -- Shaun.King

Investments by their very nature are often risky. When those investment dollars are meant for a future retirement livelihood, the thought of risk puts many retirement plan participants in a cautious space.

While this outlook is not too surprising for current retirees, it’s also common among all non-retired people regardless of age. Nearly 60 percent of working U.S. investors prefer an investment strategy with low risk even if it means the return is little to none, according to a March 2014 Wells Fargo/Gallup Investor and Retirement Optimism survey.

Some variances do occur with differences in portfolio value and gender. For instance, some 72 percent of investors with $10,000 or less preferred a low-risk/low-growth strategy, while 57 percent of investors with $100,000 or more were risk-averse. From a gender standpoint, the survey found 72 percent of women, compared to 57 percent of men, were risk-averse.

The study points out that this overwhelming worry over loss of assets works against investors’ future retirement wealth since it can mean their savings may not keep pace with inflation and plan fees.

A mix of investment options can help create a better balance for retirement plan participants. However, many employees still feel uncomfortable making these decisions, and/or feel unprepared to do so.

Despite the growing necessity for individuals to save for their retirement, our education system still lets many employees down when it comes to basic financial planning and management skills. In addition, some participants feel the payroll deductions are “enough” and that their contribution should be sufficient for their future retirement without creating or evaluating an investment strategy.

So, how can plan sponsors help? Educate, educate, educate. While you may be well versed in your retirement plan options, many employees may still be perplexed. Likewise, some participants may not realize they can make changes to their portfolio allocation during the annual renewal period.

All of this, of course, means we need to thoroughly and regularly communicate plan details to your participants. Likewise, you should consider how you align your retirement plan education. Typically, we think about creating age-based meeting agendas, but it could also be beneficial to consider creating programs that address varying levels of financial and wealth management experience.

Risk aversion often stems from a lack of investment and portfolio management skills. Let's help get your employees better educated so they can be better prepared for their future.

The opinions voiced in this material are for general information only and are not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or advisor for guidance on your specific situation.