Is it Time for Baby Boomers to Reconsider their Stockholdings?
As baby boomers enter retirement, it might be time for them to take a closer look at their stockholdings. According to Fidelity Investments, 37% of baby boomers currently have more equity holdings than recommended for their stage in life. This raises concerns about the potential risks they may face as they transition into retirement.
The average percentage of equity baby boomers have in their Fidelity retirement accounts is 65.8%, which falls within the suggested range of 47% to 67% recommended by Fidelity. However, it’s the 37% of baby boomers with heavier equities exposure that need to be cautious. With recent gains in the market, there may be a need for these individuals to rebalance their portfolios. The S&P 500 has seen a significant increase of about 17% so far this year.
Retirees need to carefully consider all the risks associated with their investments, such as the longevity risk of outliving their money, inflation, and determining what is a sustainable amount to withdraw from their retirement accounts. Derek Pszenny, co-founder of Carolina Wealth Management, suggests that investing is time-dependent rather than age-dependent. The more you withdraw, the more equity exposure you need to have.
Fidelity’s suggested range of equity holdings isn’t an exact number, but rather a range within 10% of the Fidelity Equity Glide Path calculation. The tool calculates the time to retirement and helps determine the appropriate portfolio breakdown for near-retirees. For example, if you plan to retire in 10 years, the tool suggests having a portfolio with 69% to 89% equity exposure. However, these are just recommendations, and each individual’s goals and risk tolerance should be taken into account.
Baby boomers may still have pensions in addition to their 401(k) plans and other investments like real estate. However, since this demographic entered the workforce before the advent of 401(k) auto-enrollment and target-date funds, they may be more off track compared to younger investors. It’s important for baby boomers to consider the potential risks they face and ensure they have enough funds to sustain their retirement lifestyle.
The general rule of thumb in the investment industry is to reduce exposure to equities as retirement approaches. This means shifting holdings away from stocks towards bonds or cash. Vanguard Group, another investment adviser, suggests that baby boomers approaching retirement should consider adjusting their asset allocation accordingly.
When it comes to determining the best asset allocation mix, it’s important for investors, regardless of age, to consider their own goals, time horizon, and risk tolerance. It may be beneficial for investors concerned about their retirement timing to consult a financial adviser.
Overall, baby boomers should carefully assess their equity exposure and consider rebalancing their portfolios as they near retirement. Taking into account their individual goals, time horizon, and risk tolerance will help ensure they have the appropriate investment strategy to support their retirement plans.
Analyst comment
Neutral news. Baby boomers are advised to reassess their stockholdings as they enter retirement. Some have more equity holdings than recommended, raising concerns about potential risks. With recent gains in the market, there may be a need to rebalance portfolios. Baby boomers should carefully consider all risks and consult a financial adviser if needed.
