Of course, this source of income is subject to return risk, since an individual's portfolio could fall sharply in value just before planned retirement.1 Research in the United States2 has shown that individuals tend to be risk averse in terms of the assets they hold in individual retirement accounts, and in terms of how they allocate assets in defined-contribution pension plans when they have the opportunity to do so.
Individuals tend to invest too much in investment-grade bonds, money market instruments, and large-cap equities relative to the portfolio that would maximize their expected pension. And, understandably, the older they get, the more risk averse they become.