The risk is real.
Too many workers are taking unnecessary risks with their pension savings by putting too much of their money into stocks, according to Fidelity Q3 2019 Pension Analysis, released this week.
“Although an increasing number of workers are utilizing target date funds to keep asset allocation on track and help manage the risk of retirement savings, Fidelity Q3 analysis found that many 401 (k) account holders had stock deposits higher than those recommended for their age range, ”the report concluded.
For boomers, that's especially true. In fact, 37.6% of boomers had more stock than advisable in their 401 (k) ̵
"There is a risk for this, especially for boomers," Meghan Murphy, vice president of thought management at Fidelity, told MarketWatch. “The concern is that they are already in or nearing retirement and need to think about guaranteed revenue streams. There is not much time for recovery. "
So how much is too much when it comes to stocks? It depends, among other things, on age and when you want to retire. For Fidelity's calculations about people being over-exposed to stocks, they used their Fidelity Freedom Funds calculator. By using it, for example, they would recommend that anyone who is 55 now, and will retire in ten years, should have 42% in domestic equity funds, 28% in international equity funds, 30% in bond funds and 0% in short-term funds .
There is also a common rule floating around that you should subtract your age from 100 and put that amount into stocks; So if you are 35, you will have 75% in shares, for example. But many experts say that advice is not good.
"The old formula of 100 minus your age going into stocks is no longer the best plan for most people," says certified financial planner Bobbi Rebell, host of the Financial Grownup podcast and co-host of the Money with Friends podcast. “In fact, any plan that does not take into account financial goals and risk tolerance is outdated. And any percentages that someone chooses can be adjusted – not just in how they are invested, but when the time comes, in how much comes out. If an investment does not make as much money, people can adjust their lifestyle to maintain financial security. "
Mitchell C. Hockenbury, financial planner at 1440 Financial Partners in Kansas City, says he doesn't like the rule either:" I think it all depends on what the money should be used for and when. Many clients do not retire at age 65, not because they cannot afford it, but because they are good at what they do and like. So age-based rules of thumb on stock percentages don't work that well. "
If anyone thinks they are over-exposed to stocks, Rebell says they" can and should move money out of stocks, but they just need to be comfortable with the timeline adjustment to meet their financial goals. "