On the road to retirement, members must overcome five major risks: market, timing, inflation, shortfall and longevity.
Plan sponsors need to be aware of these risks, as well as how they’re connected and how to mitigate them. “You can’t mitigate all of them entirely, and you can’t mitigate them in isolation,” noted Zaheed Jiwani, senior vice-president, client strategy, with Greystone Managed Investments.
Jiwani explained the time for taking market risk is early in the member’s career, to help offset shortfall and longevity risks later. But, he cautioned, members also need to ensure they’re not taking too much market risk later on in life, which can significantly increase timing risk (i.e., the risk of the market hurting them at a bad time). “You need a balance between market risk and timing risk.”
Increasing savings can help mitigate many of these risks, which will also strengthen members’ chances of achieving their objectives, he said.
A retirement-driven investing approach focuses on where members are going (retirement) and builds an investment strategy to get them there. It provides a framework to keep them on track and focused on saving, considering the trade-off between dollars saved and number of years to retirement.
“In a DC plan, the member’s goal is to meet their retirement needs, and the plan sponsor is trying to help members achieve this,” Jiwani added.
View more videos from the 2015 DC Plan Summit.
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