With inflation still squeezing household budgets, interest rates elevated compared to pre-pandemic norms and an ageing workforce heading towards retirement, employees are under more pressure than ever to make the right financial decisions.

For many, their workplace savings plan is the cornerstone of their retirement, but without proper guidance they risk costly mistakes during this critical period, known as the transition risk zone — the 10 years leading up to retirement when employees are most vulnerable to locking in losses if markets decline.

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“Accumulation is easy — it’s set it and forget it,” says Glenn Dial, senior retirement strategist at American Century Investments. “But once people hit their 50s, there’s no do-over. That’s when they need to engage with their savings strategy more actively.”

Protecting income

One approach gaining traction is the “100 per cent solution,” which wraps a target-date fund with insurance that guarantees income won’t decline even if markets fall.

“No one wants to give up the upside of market gains, but what you can do is ensure your income won’t go down,” says Dial. “If the market drops, your income stays the same or continues to grow. That kind of protection is what we’re seeing shift from the U.S. into Canada.”

This type of protection is most critical for people who rely heavily on their defined contribution plan for retirement income. “If you also have a defined benefit plan, you may not need to worry as much. But for those dependent on their DC plan, that’s a different conversation.”

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Dial also stresses the role of professional support during this period. “The transition to retirement creates concerns like how to turn savings into income and how to protect against market losses. Advisors are in the unique position to hear how much participants worry about having enough money or maintaining an income. The best advisors listen to those concerns and help members prepare with a clear plan.”

In Canada, the challenge lies in accessibility, according to Aman Hada, a workplace savings and retirement consultant at ASH Consulting. “Plan sponsors are interested in offering in-plan retirement income solutions that help members manage the shift from saving to drawing down, but implementation comes down to governance, cost and simplicity. If solutions aren’t transparent and portable, uptake will be slow.”

By the numbers

• 56% of DC plan sponsors reported they believe employees are ready for retirement, but just 42% of participants agreed.

• 19% of plan members said they’re “very accepting” of market risk, down from 24% in 2024.

• 62% of members indicated they believe TDFs provide income, while 34% said they guarantee against losses.

• 93% of members were interested in, while 1 in 3 plan sponsors were considering, an in-plan option.

• 8 in 10 members wanted help turning savings into income, but only 44% of plan sponsors offered financial resources.

Source: American Century Investments survey, 2025

Behaviour under stress

While market downturns can quickly test pension plan members’ resolve, record keepers report that most stay invested.

However, Dial says the real concern is with older participants. “Our research shows significant outflows from target-date funds among people aged 60 to 65 during the 2008 financial crisis and again during COVID-19. That behaviour has consequences because those investors may not recover.”

Panic is often heightened because account balances are so large at that stage, he adds. “For many, their retirement account is worth more than their house. When they see it fall 10 or 20 per cent, that might equal one or two years of salary. It feels devastating and the psychological impact can’t be overstated.”

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Hada says this is where consultants can bridge the gap. “We can’t just assume members will act rationally. Consultants need to run stress tests and prepare sponsors for how participants will behave under pressure, not how we wish they would behave.”

Looking ahead

For Dial, one of the biggest shifts that’s required is reframing DC plan conversations around income replacement.

“Right now, the goal is often to drive savings rates higher, but what matters is whether those savings deliver an income. If the DC plan is supplemental, that’s one thing, but if it’s the primary vehicle, the focus should be on income replacement rates. That shift changes the mindset and the decisions that follow.”

He also warns that the industry has been lulled into complacency by fast recoveries. “We haven’t had a sustained downturn since 2008/09. My concern is we’re being lulled into a false sense of security. Transition risk is real. One bad decision near retirement can erase decades of saving.”

Hada agrees, noting the stakes are highest in this decade. “A single misstep can undermine security. The role of employers and consultants is to reduce those risks with the right tools, communication and plan design.”

Sonya Singh is an associate editor at Benefits Canada and the Canadian Investment Review.