Over 50s not taking enough risk to achieve retirement plans
21 June 2018
The majority of over-50s struggle with investment risk, according to new research by The London Institute of Banking and Finance and Seven Investment Management.
As many as 91% of over-50s want to maintain their current lifestyle in retirement, while nearly half (47%) want to leave behind a decent inheritance and over a quarter (28%) expressed a desire to retire early. Despite this, the findings showed that on the whole, they tend to be risk-averse.
As part of the survey, investors were asked to rank their attitude to investment risk on a scale of 1-5, with 1 focusing on minimising losses, while 5 placed emphasis on maximising potential returns.
Of those surveyed, 42% scored between 1 and 2 on the riskometer, while 36% considered themselves more balanced, scoring number 3. The latter group sat halfway between wealth preservation and wealth creation.
Meanwhile, only 16% were deemed more adventurous (dubbed jet skiers) and rated 4 on the risk scale, prepared to maximise potential investment returns. A much smaller 6% scored number 5 (dubbed scuba-divers) due to their willingness to always try and maxmise potential returns.
The findings also showed some 47% of over-50s who are not yet retired said they felt they would need to save more for retirement, whilst nearly two in five (38%) accept they may have to work longer than planned.
Peter Hahn, dean at The London Institute of Banking & Finance, said: “It’s clear from our research that the over-50s aren’t taking enough investment risk to deliver what they want to do in later life. But you don’t have to be a jet skier or scuba-diver – anyone can snorkel. You just have to get in the water. And there’s help out there to ensure everyone can make the most of the assets and savings they’ve got and achieve better outcomes. The first step is dipping your toe in.”
Matthew Yeates, investment manager at 7IM, commented: “We are often told that we all need to save more for retirement, which in an ideal world, we would. But what is less talked about is the impact of saving smarter. Increasing or maintaining risk as retirement approaches absolutely won’t be for everyone – but nor will reducing risk.
“By the time a person is 50 years old, with the impact of compounded investment returns over time, the size of their retirement pot will have had a good chance of exceeding their annual salary. In this case, much larger sums of money would need to be saved if you wanted to grow your pension pot by 1% and this is where even modestly increasing your potential investment returns can have a greater impact. With greater returns also comes the potential for greater loss, but it is worth thinking about the potential implications of even small adjustments in risk.”
To demonstrate his point, Yeates used the example of two savers both retiring with an annual pension of £22,000 a year. One saver targeted a return of 4%, while the other took a step up the risk ladder to target a 5% annual return. At retirement, the first had a portfolio worth around £375,000, while the second had £425,000. The first ran out of money at 86 having withdrawn £22,000 per year whereas the second still had around £275,000 left at the same point.
Yeates added: “We have a swathe of the investing public who are (often automatically) invested in products that automatically de-risk over time, often called lifestyle products. Engrained attitudes mean people are generally more willing to save more as they get older and take more investment risk when they are younger, potentially as this is when people consider them to have the biggest effect.
“Continuing to follow an outdated approach of automatically de-risking far too early is forcing many people approaching retirement to save much harder to make up the gap, to make the biggest impact they could also look at saving smarter with the pot they have already accumulated.”
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