Is the required inventory allocation different from the actual shareholding? – Retirement Research Center
introduce
While Social Security provides a predictable source of income for ages 62 and older, most families also need additional resources to obtain a safe retirement. Most of these other resources come from employer-sponsored retirement plans, although more wealthy families may save extra money on their own. With the transition from a traditionally defined welfare (DB) program (where employers contribute and take risks) to a 401(k) program – the situation where family responsibility – market risk has become a major problem for many families. Extensive research has been conducted on the determinants of household market exposure (i.e., their asset allocation). However, the insights gathered through studying actual asset allocations may not reflect the general inertia of retired investors when managing currency, involving the minor hassle of signing plans and choosing investments, and defaults built in the retirement system, such as as Target Date Funds (TDFS). Indeed, studies are increasingly aware of the effects of these factors on observed allocations and little is known about what asset allocation might be if retired investors are not subject to these effects. In other words, how many retired investors are need Asset allocation is different from theirs Actual distribute?
This article reports the results of a new survey on how retired investors are aged 48-78 and perceive market risks and their impact on the required allocation. This analysis compares the required stock holdings reported in the new survey with the actual holdings reported in the two major household surveys and explores the relative importance of personal characteristics and institutional arrangements – i.e., the target date funds for the default investment options in a 401(k) plan.
The paper is carried out as follows. The first part briefly describes the population that is important for market risks, illustrates the role of market risks in their wealth accumulation, and summarizes the literature on family portfolio selection in the context of retirement. The second part describes the main data source for the analysis: a new retired investor survey, Health and Retirement Research (HRS) and Consumer Financial Survey (SCF). The third part describes the method of comparing required and actual allocations. The fifth section describes the results, documenting and exploring the differences between household expectations and actual holdings of risky assets.
The final section concluded that, on average, retired investors often want to allocate less assets to risky assets than they actually allocate. This result may be due to the required allocations that reflect overly pessimistic expectations of equity returns and compared to actual allocations driven by historical returns and average risk preferences, compared to actual allocations typically driven by target date fund defaults. So while many retired investors may hold more stocks than defaulted in the retirement system, it may be a good thing for the right scope of investors’ misunderstandings about return on equity.
