Overcoming Behavioral Challenges to Retirement Planning: Prudential Day One Funds
What keeps people from getting retirement ready? Human tendencies to "want it now" instead of delaying gratification, to procrastinate instead of focusing on the future, to think over-optimistically instead of realistically can derail even the best of intentions. Why? People lack the ability to imagine their future selves. And with Americans living longer than ever, that's not a formula for a financially sound retirement.
Overcoming Instant Gratification
It’s only human to put off saving for retirement while focusing on more immediate priorities. But doing so puts individuals at risk of not accumulating enough to convert into retirement income that will last a lifetime. How those savings are invested during the accumulation phase is also important. Because even small amounts, over time, can add up big for retirement income.
Prudential Day One Funds maximize exposure to equities early on, so retirement money has the opportunity to grow over a longer time.
In the critical planning years right before retirement, it’s easy just to “stay the course” and avoid taking action, especially when the market is up. But market volatility could trigger a sudden downturn late in the retirement planning process, jeopardizing an individual's plan to retire.
That’s why Prudential Day One Funds are designed with a steep glide path that automatically shifts from equities to fixed income, helping to reduce downside risk. Those nearing retirement are the people who can least afford significant losses.
Overcoming Optimism Bias
Even if retirees have done everything right – accumulating enough savings to maintain a desired lifestyle in retirement – they’re not off the hook. As they start to take retirement income, it’s easy to overlook how inflation can erode their savings base. Moreover, retirees generally face different and often higher inflationary pressures than workers, starting with rising health care costs.
An overly rosy view of the future won't necessarily offer any protection. But Prudential Day One Funds can by helping to mitigate inflation risk while helping to protect the purchasing power of retirement savings. How? Through a higher allocation to investments that historically have preformed well during inflationary periods, including commodities, TIPS and private real estate.
A GLIDEPATH DESIGN TO ADDRESS BEHAVIORAL
RISK AT EVERY STAGE
Prudential Day One Funds are designed to maximize potential growth early on, becoming more conservative in asset allocation as an individual’s retirement target date nears. Exposure to equities is reduced and allocation to fixed income investments is increased, helping to keep overall risk to retirement security in check.