Life involves risk. One of them is retirement, and whether the money we save to fund it will last. Do your employees understand their investing risk, and actions they can take now to manage it?

A recent survey found that retirement security may be threatened by these four risk factors: longevity, behavior, market conditions and inflation. The survey found a disconnect between each of these risks and participants’ actions. While that’s a concern, it’s also an opportunity to structure communications to clarify the connection.

Investing Risk #1: Longevity

In 2020, life expectancy for the average American is roughly 79 years. However, many can expect to live into their 80s, 90s or more. Social Security may provide a minimal income, leaving a gap that must be filled through personal savings. Are your employees confident that their 401(k) balance and other savings will last 20, 30 or even 40 years?

Investing Risk #2: Behavior

Considering the risk of outliving one’s savings, it is generally wise to begin making significant retirement contributions as soon as one enters the workforce. Then, leave the money in the plan and invest it appropriately. While intentions are good, many people don’t follow this course of wisdom. Instead, they delay starting, contribute little, and take a distribution when changing jobs. The result of these behaviors can be a significant hit to their ultimate account balances, and a serious, long-term impact on retirement security.

Investing Risk #3: Market conditions

The market goes up and the market goes down. No one can stop the fluctuations, but people can manage their reactions to them. Understanding that concept may encourage participants to stick to an appropriate long-term investing strategy, providing some protection against the storm. Instead of reacting emotionally to market fluctuations (see Risk #2!), they may feel prepared to ride out the bumps.

Investing Risk #4: Inflation

Some investors are so nervous about the stock market that they believe their money is safer in a cash equivalent fund, like a money market. They don’t realize that their earnings may not be keeping up with inflation, thus rendering their money less valuable as each day passes. Education can help them see that an extremely conservative investment may not be as safe as they believe it to be.

The 2020 Retirement Risk Readiness Study from Allianz Life Insurance Company of New York found that 65% of preretirees said they plan to work at least part time during their retirement years. However, among those who are actually retired, just 7% are working. Fifty percent of retirees said they retired earlier than planned, mainly due to factors outside of their control; 34% of that group suffered an unexpected job loss and 25% retired early for health reasons.

By helping employees understand the factors that impact retirement, you may contribute to their ability to reach retirement security. Learn more by reviewing the study’s key findings.

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For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.


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©2021 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.