Has the current economic state made retirement plan participants more or less risk tolerant? The intuitive answer would be less risk tolerant, but that might not be correct. When participants were asked if they were willing to take on a significant risk to earn a high return in March 2008, 31% said yes. When asked the same in May of 2008, 37% said yes. This jumped from 23% in March of 2007. The group seemingly most affected by the economic changes in this measurement is the 35-49 year-olds, those nearing retirement with alacrity (though all ages increased their risk willingness). In March of 2007 only 20% were willing to take a significant risk; now 37% are more comfortable with risk.

So, why this change in the willingness to take on risk? Could the increase in risk tolerance be a reaction to losses in retirement accounts, delaying retirement in order to spend a few more years earning, and less value in their primary residence? Perhaps these factors have shocked plans participants so much they are willing to risk more to overcome these obstacles. The risk that these participants are facing is longevity risk (risk of outliving assets saved for retirement). The fear of leaving the workforce too early, or to flip that fear, having to stay and work when they were ready to be done, is what may be driving this change.

Because overall plan participation seems low, the need for plan sponsor and provider intervention is high. Twenty-nine percent of participants are looking for more guidance in choosing among the investment vehicles available to them, and this, coupled with the increase in risk tolerance should be a signal to plan sponsors to get providers involved with giving that advice. A misguided investment at this time, one that looks to recoup the loses suffered, could backfire drastically, while a well-placed, slightly higher than normal risk level choice, could mean the different between retiring now and working a few more years.

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