Should Vocation and Location Impact Retirement Solutions?

Whether your participants are web developers in California or cattle ranchers in Wyoming, vocation and location should have an impact on the design retirement solutions. Employers should consider more than stocks and bonds when developing optimal asset allocation. Financial assets represent only one aspect of a person’s total wealth. A participant’s human capital (ability to earn and save over time), home location, and pension benefits have values that may exceed that of their financial assets.

Below are three hypothetical examples of how taking a total-wealth perspective when designing retirement solutions can help participants better prepare for retirement:


Maria the Stock Broker

Maria owns a home in Minneapolis, a thriving city with a stable real estate market. As a financial professional, she works in an industry that tends to be volatile. When the markets prosper, financial services companies are likely to pay employees well and hire often; however, in times of turmoil, financial professionals are susceptible to layoffs or significantly lowered pay.

Because of the risk associated with her vocation, Maria should consider her ability to earn when constructing a retirement portfolio. Maria’s human capital is directly tied to the general strength of the financial services sector.

What options can her employer offer?

It’s prudent for Maria to invest less of her assets in large-cap value given its high correlation with the financial services industry. Maria’s employer can offer a better choice for Maria and her colleagues based on their workforce demographics with a custom target-date solution that shifts away from U.S. value equities and toward asset classes less related with their industry, such as U.S. growth equities and non-U.S. equities.


*For Illustrative Purposes Only and not indicative of any investment


Roger the Radiologist

As a professional in the healthcare industry, Roger’s ability to earn is fairly secure. He is also a homeowner in Las Vegas, one of the 10 cities we studied in “No Portfolio is an Island.” In this study, homeowners in Las Vegas had the most significant changes to their optimal portfolios after we factored in region-specific housing wealth. Employment in the healthcare industry is steady, so Roger isn’t necessarily in danger of losing his house, but the risk associated with the location of his home could result in a decrease in his net worth. Roger might want to consider the value of his home when planning for retirement.

What options can his employer offer?

Based on our research, the financial assets of homeowners in Las Vegas should generally be invested more conservatively than average, considering the city’s historically volatile housing market. Roger’s employer could offer a custom target-date solution specifically designed to lessen the underlying risks associated with the region. Since Roger’s total wealth is more correlated to the real estate market, his employer might manage that risk by shifting his portfolio away from REITs and small-cap value and toward commodities and TIPS to offset industry-specific risks associated with working in healthcare.


*For Illustrative Purposes Only and not indicative of any investment


Joe the Field Engineer

Joe works in the oil industry and is heavily invested in the default option of his company’s 401(k) plan, an off-the-shelf target-date fund. Joe owns his home in Houston, a hub for oil operations in the United States. His ability to earn is tied directly to the energy industry. In other words, Joe’s human capital is significantly more connected to the energy sector than that of the average U.S. retirement plan participant. If Joe’s portfolio has substantial exposure to the energy industry by way of energy stocks or commodities, his total wealth could be precariously concentrated in energy. The risk of job loss and the risk of volatility in his portfolio go hand-in-hand

What options can his employer offer?

Joe’s employer could provide a custom target-date solution specifically designed to underweight asset classes with high correlation and exposure to energy stocks and commodities. Since Joe’s portfolio should take on less risk overall, his employer may consider shifting his portfolio away from asset classes such as REITs, commodities and value equities and toward TIPS and growth equities.


*For Illustrative Purposes Only and not indicative of any investment



A clearer view of a workforce’s total wealth emerges when you add details about the company’s industry and the regions where its employees live. Demographic and workforce data is readily available for plan participants, and employers can use that information to build custom retirement solutions. The more an employer tailors its participants’ retirement plans to the demographics of the workforce, the more likely the plans are to guide better investment outcomes.


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Lacey is the team lead focused on B2B demand generation for Morningstar’s growing Workplace segment. This includes responsibility of marketing strategy and execution with plan sponsors and key providers to expand Morningstar’s market reach. The Workplace umbrella includes financial wellness and retirement products for employees as well as custom models and fiduciary services. With products, services and thoughtful marketing, we strive to empower companies to help employees build financial wellness today and get ready to retire when the time comes.

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