Are younger Americans becoming too risk averse?

By Paul Wilson


Regular visitors to this site read a lot about the many advantages of annuities and guaranteed income, and with good reason. I don’t have to sell you on these products since you sell them every day yourselves.

And according to a new study from The Hartford, you’re doing a pretty good job of getting the word out about the importance of guaranteed income. Well, you and all the recent economic turmoil. Oh, and that hard-to-ignore death rattle of Social Security.

Anyway, whatever the reasons, younger workers are suddenly very attracted to safety and “pension-like” products. Almost 90 percent of the study's respondents said they find it “very” or “somewhat” appealing to have the option to turn a portion of their retirement savings into guaranteed income. Among younger workers, this percentage rose even higher, to 95 percent.

Great news, right?

Not necessarily, according to a recent blog by Roger Wohlner on U.S. News.

After admitting that he’s pleasantly surprised that younger workers are thinking about retirement at all, Wohlner expresses concern about the cautious investment strategies of younger Americans.

“I’m concerned that younger workers are too risk averse. On the one hand, it would be hard to blame anyone whose initial investing experience includes the 2008-09 market decline … However, I still contend that younger workers have the greatest retirement savings gift of all: time,” Wohlner writes.

Younger workers can afford to make riskier investments and should be encouraged to do so in most cases, he says.

“Guaranteed income products in 401(k) and other retirement plans will likely be the wave of the future. If done correctly and a good product is selected by the plan sponsor, this can be a plus for many participants. But at the end of the day, the amount of guaranteed income that will be available to a participant will depend upon the amount that he or she has accumulated. As such, the focus of workers needs to be on saving enough and investing wisely.”

What do you make of Wohlner’s comments? Do you counsel younger clients to take risks in their investments or are caution and guaranteed income always the best policy?

At the end of the blog, he says, “it might make sense to hire a professional financial adviser to help you evaluate where your are vs. where you need to be at retirement.”

If nothing else, that should earn him a few brownie points, right?