The Markets November 4, 2015

Retirement Investors Need to Understand Role of Risk

“Understanding how risk factors into your plan can help build financial confidence,” says Marcy Keckler, with Ameriprise Financial.
Reported by

Seventy-three percent of American investors tend to avoid risk entirely or weigh risk very carefully when engaging in financial decisions, according to the Financial Risks & Investor Attitudes study by Ameriprise Financial.

The study found 31% of investors surveyed are what Ameriprise calls Risk Avoiders, who are the most guarded when it comes to financial risk-taking. Eighty-nine percent of this group view their outlook on risk as “cautious.” But, while nearly half (42%) of respondents in this profile claim they are not willing to take risks with their finances, many are unknowingly increasing their exposure to risk, Ameriprise says.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The study found many people in the Risk Avoiders group report being underinsured, only make investments with guaranteed returns, and some store their savings in cash. This group is also less likely to conduct the research necessary to help mitigate risk. The majority of Risk Avoiders are Baby Boomers and female (61%).

Forty-two percent of investors surveyed are what Ameriprise calls Risk Mitigators. Investors in this profile characterize themselves as willing to take risks after significant research (89%), but also associate risk with loss or uncertainty in their investment outlook. Risk Mitigators are more engaged in actions such as diversifying investments and being sufficiently covered by health and life insurance. However, they remain uncertain about their approach to investing and risk.

Risk Mitigators prefer low-risk investments and shift to conservative choices during periods of market volatility—decisions that may not always be in their best interest. Demographics in this group are fairly evenly split between Millennials, Gen X, Baby Boomers, and among gender.

NEXT: Who’s willing to take more risk?

One-quarter of investors surveyed are what Ameriprise calls Risk Managers. All these individuals see financial risk as an opportunity. Consumers who fit this profile are willing to take informed risks after conducting research and focus on growing their retirement savings through investing. They pursue well-thought-out risk mitigation strategies, such as assessing financial decisions along with diversifying and balancing investments.

Nearly half (45%) of Risk Managers invest heavily in the stock market, and the majority report understanding the details of their 401(k) plans. Risk Managers are predominately male (61%) and are represented equally across the three generations surveyed.

Just 3% of investors surveyed are what Ameriprise calls Risk Embracers. They are highly motivated investors, many of whom associate financial risk with “excitement” (39%). A majority of investors (64%) in this profile characterize themselves as “real risk seekers,” with 76% indicating that they are willing to make high risk and high return investments. This group also admits they are more willing than their peers to take risks in other areas of life such as borrowing too much when buying a house, or making a career change with less financial security.

While 53% of respondents in this group consider themselves knowledgeable about investing, they are primarily focused on growing their investments versus employing mitigation strategies to protect assets. The majority of Risk Embracers tend to be Millennials (56%) and male (67%).

“Investing for the long-term, while also trying to navigate market swings, is one of the biggest challenges facing investors,” says Marcy Keckler, vice president of Financial Advice Strategy at Ameriprise. “Whether you are an experienced investor or beginning to build your retirement nest egg, having a comprehensive financial plan and understanding how risk factors into your plan can help build financial confidence.”

The Financial Risks & Investor Attitudes study surveyed 3,000 Americans between the ages of 25 and 70. Respondents ranged from Millennials with at least $25,000 in investable assets to Gen Xers and Baby Boomers with at least $100,000 in investable assets. More information is at www.ameriprise.com/financialriskstudy.

Client Service November 4, 2015

Using ACA as Bridge to Retirement Health Coverage

Experts suggest the Affordable Care Act offers options for those seeking early retirement but needing, for obvious reasons, to maintain affordable medical coverage traditionally only found in the workplace.  
Reported by

For Americans who are interested in retiring but continue to work full-time to bridge their medical benefits to Medicare, the Affordable Care Act (ACA) offers new health insurance options, says Prudential Financial in a new white paper.

By taking advantage of the health insurance options made available through the ACA, individuals can enhance career flexibility later in life, Prudential says, “without having to worry about their health insurance in the same way as prior generations of early retirees.” There are some deep-seated and opposing opinions about what the ACA is doing to the American health care system, but Prudential says those who have left full-time jobs and are under age 65 might have the most to gain.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

This is because generally Americans only become eligible for Medicare at age 65, which, according to Rodney Allain, head of sales and distribution for Prudential Annuities, leaves many people staying in a job “longer than they’d like just to keep the health insurance.” It may seem like an extreme choice to work longer than theoretically necessary to maintain health coverage, but given the potentially catastrophic financial impact of an uncovered-but-serious health event (think cancer or a car accident), for even affluent people, the strategy makes economic sense.

Under the ACA’s plethora of new insurance options and approaches, however, Prudential says individuals may now be able to retire early, work part-time or move on to a new career—still knowing there are more affordable healthcare coverage options available than just a few years ago. 

Allain notes the primary reason people are in search for a bridge to Medicare is the changing retirement picture in the United States. He says most Americans are now retiring in stages, rather than abruptly at the age of 65 or 66, moving into part-time jobs or becoming self–employed. The factors contributing to this trend include a lack of retirement savings, freezing and shuttering of defined benefit plans, and increasing health care costs.

NEXT: Encouraging trends 

“The guidelines in the ACA include a number of provisions aimed at making health insurance more accessible and affordable,” says Jim Mahaney, vice president of strategic initiatives for Prudential. “There’s no need to worry any longer over dangerous gaps in coverage or being turned down for coverage due to a pre-existing condition.”

Mahaney feels early retirees can also benefit from provisions that “limit the amount older individuals can be charged and prohibit insurers from charging women more than men.” The ACA also provides subsidies and tax credits for lower income individuals, he says, which could prove particularly valuable for early retirees. This group may have less taxable income than when they were employed in a full-time job, he explains, and can often control the amount of taxable income they take during the years just prior to turning 65 and becoming Medicare eligible.

Prudential finds people seem to be getting used to the idea of purchasing coverage through public and/or private health insurance exchanges, often known as marketplaces. They’re also increasingly willing to get and seek information directly from health insurance companies, from an agent or broker, or from an online seller.

The whitepaper continues: “The cost [of coverage for a given pre-retiree] will depend on the type of plan, with each plan designed to pay, on average, a range between 60% to 90% of covered expenses. A catastrophic plan can be purchased for much less, but these have very high deductibles and, for early retirees, are only available to those who qualify for a hardship exemption.”

“If you are thinking of retiring prior to age 65, you should review your health insurance options at the government’s website, www.HealthCare.gov,” Mahaney concludes.

The full white paper can be found here: Early Retirement and the Affordable Care Act. 

«