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Portfolio > Asset Managers

Older IRA Holders Shift Away From Stocks

By Allison Bell

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NU Online News Service, Jan. 21, 2004, 5:42 p.m. EST – Older workers were about as likely to have stock in their 401(k) plans in 2001 as younger workers were.[@@]

Many investment experts say workers who are nearing retirement age should put a higher percentage of their savings in bonds and other interest-earning assets and a lower percentage in stock and stock funds.

The theory is that older workers need some stock to protect themselves against inflation, but that older workers have less time than younger colleagues to overcome the effects of short-term slumps in the stock market.

Craig Copeland, a researcher at the Employee Benefit Research Institute, Washington, has compared 2001 asset allocations for individual retirement accounts and 401(k) plans with 1992 IRA and 401(k) plan allocations. The results, published in the February issue of the EBRI Notes newsletter, show that holders of IRAs seem to be following the experts’ advice to pull back from stock and stock funds as they age.

In 2001, only 25.9% of family heads older than 75 who owned IRAs had most of their IRA assets in stock and stock funds. The younger the family heads were, the more likely they were to have most of their IRA assets in stock, and 70.7% of IRA holders younger than 35 had most of their IRA assets in stock.

Copeland could not find 401(k) plan allocation data for participants over age 65 in the government survey data he used. But his results show that, in 2001, 401(k) plan allocations between stock and interest-earning assets varied little with age. In each age category, between 50% and 56% of the family heads participating in 401(k) plans had most of their plan assets in stock. Between 8.7% to 11% of the participants had most of their plan assets in interest-earning assets.

In 1992, the age of family heads who had IRAs or participated in 401(k) plans had little correlation with portfolio allocations.

Among IRA holders, for example, family heads younger than 35 were more likely to have all of their IRA assets in stock than family heads in the 35-44 age category, but they were less likely than the older family heads to have most of their 401(k) plan assets in stock.

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