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Many Retirees, Pre-Retirees Not in Tune with Their Risk Tolerance Level

Many retirees and pre-retirees worry about market losses derailing their retirement savings, yet they often pursue aggressive investment strategies that do not necessarily reflect their risk tolerance level, according to a new report.

MassMutual’s Retirement Savings Risk Study found that overwhelming majorities either strongly or somewhat agree – 94% of pre-retirees and 92% of retirees – that it is important to take steps to avoid major stock market losses right before retirement. In addition, nearly half of pre-retirees (49%) and one third of retirees (32%) express concern about taking on too much investment risk, especially right before retirement.

Yet, the study also finds that many retirees and pre-retirees are more interested in growing rather than preserving their assets, with 59% of pre-retirees and 32% of retirees who describe pursuing either “aggressive” or “moderate” growth as their primary investment strategy.

MassMutual commissioned the survey of pre-retirees within 15 years of retirement and of retirees no more than 15 years into retirement to better understand the investment preferences and philosophies of those approaching retirement as well as retirees. Observing that both groups are worried about a major downturn in the stock market, the firm warns that poor investment decisions could derail their retirement.

“It may be helpful for retirement savers to reevaluate their investment portfolios to avoid losses from a significant market downturn as they approach retirement and then spend their first years in retirement,” advises Tina Wilson, head of MassMutual’s Investment Solutions Innovation. “Working with a financial advisor, attending educational sessions available at the workplace, and accessing web-based financial planning tools may be helpful.”

Interestingly, the study also found that retirees don’t necessarily do what they believe they are going to do prior to retirement. Pre-retirees were found to be most likely to predict that their investments will be focused primarily on preservation rather than growth when they retire, while retirees were less likely to actually adopt that strategy.

In fact, the study shows that 43% of pre-retirees expect to be primarily focused on preservation at retirement, while only 23% of retirees were focused on preservation at that time, suggesting pre-retirees are notably more conservative.

Of course those with low risk tolerance or who feel less knowledgeable about savings and investments are more likely to believe in becoming significantly more conservative as they approach retirement, while those with high risk tolerance or who feel very knowledgeable are more likely to believe you should not become substantially more conservative.

Perhaps not surprisingly, those with a DB plan or annuity are more likely to be growth-focused in the five years before retirement, at retirement, and within the first 10 years in retirement.

Plan Investment Options

When it comes to investments, retirees are more likely to be familiar with actively managed mutual funds (82% versus 74%), passively managed mutual funds (75% versus 69%) and customized investments (67% versus 59%), while pre-retirees are more likely to be aware of TDFs (59% versus 52% of retirees), according to the report.

In addition, pre-retirees are more likely to find TDFs appealing (70% versus 47% of retirees), although a smaller percentage of respondents are actually invested in a TDF (29% and 20% of retirees).

However, many respondents indicate an interest in a “set-it-and-forget-it” investment option and TDFs are seen as easy to use and helpful for those who may not have the discipline to adjust allocation on their own. According to the findings, 66% of pre-retirees and 44% of retirees agree that TDFs would help. Conversely, 38% of pre-retirees and 45% of retirees would prefer to manage their own money.

20-20 Hindsight

Meanwhile, few retirees wish they had been more conservative just before retirement, which may have been influenced by one of the longest bull markets on record. The study notes that 58% of retirees say they would have employed the same investment strategy just before retirement and 35% say they would have invested either “much more” or “somewhat more” aggressively if they could change past decisions.

The study notes, however, that financial advisers generally caution retirees and pre-retirees against bearing too much risk. Of the survey respondents who work with an adviser, large percentages – 73% of pre-retirees and 88% of retirees – report that their adviser recommended that they invest more conservatively.

The firm notes that there may be a disconnection between retirees’ perceived risk tolerance level and the adviser’s guidance, given investors’ desire for continued growth.

“It’s clear from our research that many retirees may be vulnerable to sudden market corrections and volatility, which can adversely impact savings,” according to Wilson. She cautions that, “Because many retirees rely on their investments for income and have more limited time horizons to recoup investment losses, a significant market downturn could significantly reduce their income.”

When asked advice about how to invest money right before or after retirement, retirees most often advise today’s near-retirees to:


  • Use a financial adviser (17%)

  • Keep saving as much as possible (9%)

  • Be conservative and reduce risk (7%)

  • Diversity (6%)

  • Know your own comfort level (6%)

  • Invest as early as you can (5%)

  • Balance between growth and income (5%)


Greenwald & Associates conducted the internet-based study on behalf of MassMutual, polling 801 retirees who have been retired for no more than 15 years and 804 pre-retirees within 15 years of retirement. Pre-retirees were required to have household incomes of at least $40,000 and retired respondents had at least $100,000 in investable assets. The survey was fielded in January 2018.

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