In their youth, baby boomers were known for their over-the-top behavior—whether it be with sex, drugs, or rock and roll. Now, as they enter retirement, it’s investing.
This giant generation, born 1946-1964, has far too much of their retirement money in stocks, according to research from Fidelity Investments in its quarterly report on retirement funding.
By the fund house’s assessment, about one in three (37.6%) of 401(k) account holders in this age cohort have a higher amount of equities than recommended. Disturbingly, 7% of them have portfolios that are completely in stocks.
“While the market’s performance over the last few years has had a positive effect on many retirement account balances, it may have also contributed to some individuals having more stock than is recommended,” said Kevin Berry, president of workplace investing at Fidelity.
What does Fidelity think the right amount of equity exposure should be? For 60-year-olds, who are approaching retirement but not there yet, the right amount is 59%. That’s close to the classic 60-40 stock-bond split that you’ve heard about for years. For post-retirement folks, as in 75-year-olds, the recommended stock allocation shrinks radically, to 36%. Bonds make up almost half of that suggested portfolio, with 15% in short-term assets, meaning federal fixed-income obligations that mature within a year.
By way of contrast, Fidelity believes that a 50-year-old should be on the aggressive side regarding stock holdings, with 84% in equities. The thinking, of course, is that you need stocks to build wealth over time.
But once your working life is over, prudence—as in fewer stocks—seems more sensible. A 75-year-old has less time to recover from a bear market than does a 50-year-old. The Fidelity asset allocations come from its target-date funds.
No surprise, Fidelity’s Berry is a strong advocate of a balanced asset allocation that synchs up with an investor’s age. “Maintaining the right balance of stocks, bonds, and cash,” he said, “can help ensure investors are not exposing their savings to any unnecessary risk, especially if the market was to trend downward.”