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Retirement confidence sags amid fears of looming recession

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Fears of a global recession are weighing heavily on investors' confidence in their retirement plans, as more risk-averse clients pull out of equities and bonds, according to the latest Retirement Advisor Confidence Index — Financial Planning's monthly barometer of business conditions for wealth managers.

"Clients are feeling more concerned about the economy and the equity markets," one retirement advisor says. "We have been receiving more questions about lowering risk in their portfolios."

Another advisor puts it more bluntly: "Clients are more and more nervous. We are preparing for recession."

One advisor reports fielding "lots of questions about recession and market participation."

Concerns about tariffs and trade wars, volatility, a potential market correction and other factors combined to sap clients' appetite for risk, which plunged to its lowest level of the year in the most recent RACI survey.

In that poll, risk tolerance notched a score of 32 — down more than 16 points from the previous month and more than 20 points from the same month last year.

RACI scores below 50 mark a decline in confidence, while scores above that level indicate an increase.

Overall, retirement confidence slumped to 46 for the most recent month, continuing a downward slide that has seen the RACI composite dip below 50 for the past two months. Prior to that, the last RACI score to fall below 50 came in December.

"I remain concerned about the increasing probability of a recession within six to 24 months," one advisor says. "I am proactively moving my clients into more cautious allocations."

"Words are starting to creep in like ‘recession,’ ‘crash,’ etc.," says another advisor.

Those sentiments were reflected in asset flows, with advisors reporting that retirement clients were fleeing from both equities and bonds.

The RACI component that measures assets used to purchase equities dipped to 44.6, down 5.4 points from the previous month and 15.2 points from last year. Like the overall confidence index, equities posted their lowest mark of the year, creeping back down near the most recent low point, which came late last year amid the December downturn.

A similar — if less dramatic — story was told by bonds and debt-based securities. In that component of the RACI survey, advisors reported a score of 44.6, off slightly from the previous month and the third consecutive month of decline. That score was also down eight points from the year-ago score.

Of course, some advisors say that it is important to help their clients stay focused on the big picture, despite their uncertainty and skittishness, as they plan for retirement.

"Investing for retirement is one of the most important aspects of our business," one advisor says. "Given that it is a long-term proposition, we tend to advise our clients to focus on the long term and not to be dissuaded by short-term market fluctuations due to geopolitical or economic issues."