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Defined Contribution Investing and Retirement Risks

Critical Issues for Retirement Systems and DC Plan Participants

In addition to market-related risks, there are certain risks that are particularly relevant for retirement planning, especially for investors who are defined contribution plan participants. This group of papers examines some of the most critical risks for defined contribution investors, including sequencing risk (the risk of large drawdowns occurring close to their retirement date) and longevity risk (the risk that they will outlive their own retirement cash flows).

These papers also look at the ways in which retirement systems have adapted over the past few months, both from the perspective of plan sponsors looking to minimize expenses when the parent entity is struggling, and from that of plan participants who might be looking to access retirement funds earlier than expected. What follows is a list of some of the top recent content on investment risks, industry-wide updates, and other considerations for DC investors. 

DC retirement hourglass

What Happens When Income is the New Outcome? (Intech, 2020)

For compliance reasons, this paper is only accessible in certain geographies

How can income risk, market risk, and longevity risk be addressed simultaneously for defined contribution plan participants? Intech describes the relationship between these and other risks for retirees, as well as a potential solution.

Rethinking the Role of Fixed Income Along Retirement Savings Journey (MFS, 2020)

Fixed income yields are low at present, so does this asset class still have a place in DC portfolios? MFS suggests that plan sponsors consider an evolving, multi-sector approach to fixed income for plan participants in different stages of the retirement journey.

Real Estate and Defined Contribution Plans (FTSE Russell, 2020)

Some target date funds are now allocating to real estate, whether via REITs or other private investments. This FTSE Russell paper looks at these and other real estate-specific considerations for defined contribution plans.

Should Retirement Withdrawals Depend on Real Interest Rates? (LGIM blog, 2020)

For compliance reasons, this paper is NOT accessible in the United States and Canada

LGIM discusses saving versus spending in retirement when interest rates are high, as well as when withdrawing more for the purpose of purchasing an annuity may make sense.

Video: Inflation and Retirement Planning (S&P Dow Jones Indices, Aug 2020)

Inflationary impacts are often underestimated by investors when planning for retirement (some even suggest that all returns should be calculated as real returns net of fees). S&P Dow Jones Indices presents a round table discussion on the subject.

Dynamic Asset Allocation: Targeting Retirement Security (CFA Institute, 2020)

There could be a fault within current 'safe-harbor' glide path products, in that the glide path could potentially be focused on a non-optimal goal. CFA Institute looks at how these outcomes may differ from some dynamic portfolio strategies within retirement plans.

The Risks on the Savings and Retirement Journey (Aviva Investors blog, 2020)

For compliance reasons, this paper is only accessible in certain geographies

This Aviva Investors article attempts to map out the various risks that defined contribution plan participants are exposed to over the course of their journey towards retirement.

Should DC Schemes Help Those Financially Affected by COVID-19? (LCP, Aug 2020)

As a result of the Covid-19 pandemic, some countries (such as Australia) have made pension pots more accessible to retirees. However, when accessing funds early, one loses the ability of those funds to grow and compound over time. What other lessons can be drawn from Australia's experience?

Managing Black Swan Stock Market Risks in Retirement (SOA, 2020)

Managing the risk of severe drawdowns (especially 'black swan' events such as the recent crisis) is extremely important for those individuals who are at or nearing retirement. A simple, safety-first approach may be appropriate for retirees who are very risk-averse.

Retirement Spending: Wants and needs (PGIM Defined Contribution, May 2020)

Focusing on a framework that splits retirement spending into categories like 'needs' versus 'wants' may allow DC plan participants to pursue strategies designed for providing lifetime income.

Shifting DC Times Summer 2020 (Invesco US)

For compliance reasons, this paper is only accessible in the United States

This paper from Invesco specifies cost-cutting strategies for plan sponsors of both safe harbor DC plans and non-safe harbor DC plans. It also includes a case study of DC plan management featuring interviews with executives from International Paper.

Helping DC Plan Participants keep their Balance (Wellington Management, 2020)

There is a return premium that can be captured merely from rebalancing retirement portfolios over time, but there are also several techniques that can be employed in doing so. This paper examines several rebalancing policies for DC plan participants.

Post-Retirement Investment Solutions: A framework (Capital Group, Jul 2020)

For compliance reasons, this paper is only accessible in certain geographies

Capital Group describes how advisers can categorise retirement needs into four arenas - lifestyle, living, contingency, and legacy. The application of this framework can also be done in a scalable fashion.

UK Defined Contribution Update (LCP, Aug 2020)

Lane Clark and Peacock's brief quarterly update looks at key developments in the UK defined contribution industry, such as regulatory updates from the FCA and PLSA, as well as the issue of short-changing female retirees.

U.S. 2020 Defined Contribution Employer Survey Report (Aon)

For compliance reasons, this paper is only accessible in the United States

This survey from Aon looks at employers' perception of DC plan success, the ways that they are currently managing defined contribution plans, and where opportunities may lie. It also discusses an important concept - retirement readiness.

Better Post-Pandemic Retirement Systems (University of Pennsylvania, 2020)

How have retirement systems fared during the COVID-19 pandemic, and are there any particular financial products that might make them more resilient to the threat of aging/longevity risk?