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Saving for a Better Retirement: How Risk Attitudes Affect Choice of Retirement Scheme
Ricky S Wong1, Magda Osman2, Wai Hung Wong1
1Department of Supply Chain and Information Management, School of Decision Sciences, Hang Seng Management College, Hong Kong.
Psychological Reports
|January 30, 2018
Summary
Individual risk attitudes significantly influence retirement investment choices. Risk-averse individuals favor low-risk funds, while risk-seeking individuals allocate differently in mandatory provident fund and individual savings account schemes.
Area of Science:
- Behavioral Economics
- Finance
- Retirement Planning
Background:
- Millions save for retirement via mandatory provident fund (Hong Kong) and individual savings account (UK) schemes.
- Understanding individual preferences, particularly risk attitudes, is crucial for retirement investment decisions.
- Limited research exists on how personal risk preferences impact retirement portfolio allocation.
Purpose of the Study:
- To investigate the impact of personal risk attitudes on retirement investment choices.
- To compare these impacts across Hong Kong's mandatory and UK's voluntary retirement schemes.
- To inform policy decisions regarding retirement savings schemes.
Main Methods:
- Two experimental studies were conducted with participants from Hong Kong and the United Kingdom.
- Participants' risk attitudes (risk-seeking vs. risk-averse) were assessed.
- Retirement investment portfolio allocations were analyzed based on risk profiles.
Main Results:
- Personal risk attitudes were a strong predictor of retirement investment portfolio composition.
- Risk-averse individuals allocated a greater proportion of savings to low-risk funds compared to risk-seeking individuals.
- This pattern was consistent across both Hong Kong and UK retirement schemes.
Conclusions:
- Individual risk tolerance is a key determinant in retirement investment strategy.
- Findings highlight the importance of considering behavioral factors in retirement scheme design.
- The study provides empirical evidence relevant to policy considerations for Hong Kong and UK retirement systems.
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