Baby Boomers and Retirement: Reevaluating Stockholdings

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As baby boomers approach retirement, it may be wise to reassess their stockholdings. According to Mike Shamrell, the vice president of thought leadership at Fidelity, 37% of baby boomers currently have more equity holdings than recommended for their life stage.

Baby boomers, born between 1946 and 1964, are either entering or approaching retirement. In the second quarter, the average percentage of equity in baby boomers’ Fidelity retirement accounts was 65.8%, falling within Fidelity’s recommended equity range of 47% to 67%.

However, caution is advised for the 37% of baby boomers with heavier equity exposure, as recent market gains may necessitate rebalancing. The S&P 500 has already increased by approximately 17% this year.

Derek Pszenny, co-founder of Carolina Wealth Management, emphasizes that retirees should consider all risks, including longevity risk, inflation, and the appropriate withdrawal amount from their retirement account.

Pszenny also notes that investing should be based on time rather than solely age. The more one withdraws, the greater equity exposure is needed.

Fidelity’s suggested level of equity holdings is not a fixed number but a range calculated within 10% of the Fidelity Equity Glide Path. Fidelity provides a tool that calculates the time to retirement and recommends a portfolio breakdown for near-retirees.

For instance, if you plan to retire in 10 years, the tool indicates that the Fidelity Freedom 2035 currently has a recommended equity percentage of 79%. Thus, if your portfolio falls between 69% and 89% equity, it is considered appropriately balanced for your remaining time until retirement.

Shamrell emphasizes that these levels are mere suggestions as everyone’s goals and circumstances differ. He advises individuals to assess their personal risk tolerance when determining the equity level that allows them to sleep at night.

Retiring with Confidence: A Closer Look at Investment Strategies for Baby Boomers

As the baby boomer generation approaches retirement, their financial planning strategies often differ from those of younger investors. Many baby boomers not only have pensions and 401(k) plans but also other investments such as real estate. However, because they entered the workforce before the advent of 401(k) accounts, auto-enrollment, and target-date funds, they may need to reassess their investment plans to ensure a secure retirement.

Fidelity, a leading investment firm, emphasizes the importance of long-term financial planning for retirement. Their target-date funds take into account an investor’s entire lifespan, rather than just their actual retirement date. This approach considers the possibility of living 15, 20, or more years in retirement, ensuring that individuals do not outlive their money.

In the investment industry, it is generally advised that investors reduce their exposure to equities (stocks) as they approach their retirement goal. Vanguard Group, another reputable investment adviser, suggests that baby boomers nearing retirement allocate their holdings away from stocks and towards bonds or cash. It is crucial, however, for investors of all age groups to tailor their asset allocation mix to their specific goals, time horizon, and risk tolerance.

When it comes to timing retirement, many individuals find it beneficial to seek assistance from a financial adviser. Timing this important life event can be challenging, and a professional can help navigate through the complexities. Nilay Gandhi, a senior wealth adviser with Vanguard, emphasizes the importance of considering individual circumstances rather than relying solely on industry trends and averages.

For baby boomers nearing retirement, Tony Pszenny, a retirement planning specialist, recommends an equities exposure between 50% to 75% with an annual withdrawal rate of 4% to 5%. With this approach, he is confident that retirees can meet their financial goals without depleting their savings.

While target-date funds are popular options, Pszenny cautions against relying solely on them. He highlights that many individuals fail to grasp the fund’s time frame – whether it is designed solely to reach their retirement date or to last throughout their entire lifetime. Pszenny believes that the most critical investment decision lies in determining the appropriate asset allocation. Each person should carefully consider the amount of equities they hold and how those holdings are allocated to ensure optimal results.

In conclusion, baby boomers should thoughtfully evaluate their investment strategies as retirement approaches. By carefully considering their financial goals, time horizons, and risk tolerances, they can confidently plan for a secure retirement. Seeking guidance from a financial adviser can provide valuable insights that align with their specific needs. Remember, a well-crafted asset allocation plan lays the foundation for a successful retirement.

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