Americans’ Growing Risk Exposure

Abstract

Saving enough money to pay for one’s living expenses in retirement is daunting. But even if households save diligently, the money they put away may not be available when they need it because of a financial market crash just before retirement. Households typically want to invest their savings in something to earn a rate of return that will help pay for their retirement. Earning a rate of return generally comes with some financial risk—the possibility to lose part of the investment. People may invest their savings in stocks and hold a lot of money in housing, for instance, and stock and house prices may fall just before households need the money, leaving them with a lot less income to spend than anticipated. This is the essence of risk when it comes to savings. The question here is not whether taking risks is okay but what households can do to protect their savings from too much risk.