If market risk, inflation risk, and interest rate risk were on the tip of your tongue, you need to update your list.
Recently, T. Rowe Price surveyed employers that make defined contribution plans, like 401(k) plans, available to their employees. The company asked plan sponsors to rank the risks they were most concerned about for the people who saved in the plan. The top concerns were:
42 percent = Longevity Risk. No one knows exactly how long they will live, which makes it difficult for plan participants (and anyone else planning for retirement) to be certain future retirees won’t outlive their savings. Longevity risk was among the top three risks listed by 95 percent of plan sponsors.
25 percent = Participant Behavioral Risk. “Left on their own, participants tend to take on either too much or too little risk by: failing to properly allocate and diversify their savings; over-investing in company stock (or stable value/money market funds); neglecting to rebalance in response to market or life changes; and attempting to time the market,” explained T. Rowe Price.
14 percent = Downside Risk. This is the likelihood an investment will fall in price. For instance, stocks have higher return potential than Treasury bonds, and higher potential for loss. When planning for retirement, it’s important to balance the need for growth against the need to preserve assets.
If you would like to learn more about these risks and strategies that may help overcome them, give us a call.
Weekly Commentary for July 16, 2018
photo by: 3d man with risk © Dreamstimegreat | Dreamstime.com