Preretirees who suffered big losses during the Great Recession in 2008 are likely sheepish about dipping their toes into the stock market waters. Some may have even experienced the triple bubble of the dot-com, tech and mortgage crises.

And while it’s understandable to be jittery, their decisions to sit on the sidelines could greatly affect the money they have available upon retirement.

In fact, those who chose to sit out after the 2008 collapse would have missed out on 10 straight years of big gains, and they stand a much greater chance of running out of money during their golden years.

According to a recent report by Greenwald and Associates and the Diversified Services Group, more than half of investors between the ages of 50 and 59, and nearly four in 10 between the ages of 60 and 70, are underinvested.

Per Investment News:

Retirement solutions that provide investment protection may help clients invest more confidently by providing the opportunity for growth with important safeguards. More than three-quarters of investors said that they prefer a protection-focused portfolio versus a portfolio that seeks to outperform a stated benchmark, according to a Cerulli study.

Further, market volatility is a concern for many preretirees. In fact, 54% of retirees currently working with financial advisers report market volatility as a major pain point in retirement, according to the Cerulli research.

Clearly, there is an opportunity for advisers to address client concerns by explaining how various financial products can help one’s ability to seek growth for retirement. In addition, discuss how increasing exposure to equities with principal protection may address your clients’ goals for how they want to live in retirement.

Here is how you can help your clients get more comfortable with the appropriate level of equity exposure for their circumstances to enable them to realize their retirement vision.

  1. Understand your clients’ risk tolerance. To provide good advice to your clients, you need to know what level of risk (or equity exposure) they are willing to take. Their aversion to loss or their willingness to tolerate the potential for losses will shape your discussions, and your approach to identifying appropriate solutions to suit their behavioral inclinations. Also talk about their investment time horizon and when your clients anticipate needing to make withdrawals to cover retirement expenses.
  2. Determine their risk need. Knowing how much risk your clients need to work toward their retirement goals will also shape your approach. Mortgage payments, educational or business expenses, and other financial needs must be considered in your planning process. It’s important to note that assets traditionally considered “safe,” like bonds and CDs, could have eroded value in a rising rate environment and normally don’t have the growth potential that equities have.
  3. Consider filling an equity exposure gap via protection features. We know that emotions influence investment decisions for retail investors. This need for safeguards is driving your clients’ investment decisions.

One possibility is a long-term retirement product like a variable annuity with the purchase of an optional accumulation benefit rider which can provide equity exposure coupled with principal protection on the initial investment. This may be just the right fix to close the gap between the exposure they are willing to take and the exposure that may be needed to potentially grow their retirement nest eggs.

Of course, investors should consider fees, guidelines and risks with variable annuities and riders. Withdrawals or surrenders may be subject to a surrender charge, ordinary income taxes and, if made prior to age 59½, to a 10% IRS penalty.

And your clients should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. Remind them to carefully read the prospectuses, which contain the information about the products and underlying investment options.

Aligning your clients’ risk tolerance with their risk need may be just what they need to realize their retirement vision. Talk to your clients about solutions that enable them to participate in the market, but with the option of added protections.