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Retirees increasingly willing to take on greater investment risk

18 July 2019

Retirees are bucking the trend for more conservative investment strategies in favour of greater risk-taking, amid a perfect storm of later retirement and reduced later life provisions, new research has shown. 

According to investment specialist Seneca Investment Managers, around half of advisers (47%) with retired clients are happy to have up to 30% of their savings fully exposed to the stock market, while over a third of advisers have had recently retired clients with an even greater exposure.

This is creating a challenge for advisers, as they seek to provide a sustainable income to clients throughout a potentially longer, more costly retirement, the firm said.

Steve Hunter, head of business development, Seneca Investment Managers, commented on the findings: “The concern is that a significant proportion of current and incoming retirees are set to have less in their later life than their parents did, and this is only going to heighten as the pension freedom generation edge toward their retirement years. 

Our research suggests accumulation and decumulation are blurring, as advisers are telling us they are seeing some invested clients attitudes towards risk in later life increase rather than decrease as is the traditional thinking perhaps fuelled by greater individual responsibility on creating sustainable levels of income over a longer period of time.”

Over half (57%) of advisers said “what their client wants” drives them to quantify the appropriate level of sustainable income for their retirement. While annuities and guarantees lose favour with advisers and clients regarding a sustainable income solution, other options are emerging, according to Seneca IM. One solution is a cashflow matching model for more explicitly defined liabilities.

Hunter added: “Taking more risk does not mean making risky investments, and advisers can help their clients by encouraging them to take more control of their retirement provision, staying invested in the stock market, and identifying the funds most suitable to retirees who want a step up in risk profile without the risk of wiping out nest eggs.”