(Bloomberg Business) — Six years of a bull market in U.S. stocks have done great things for many retirement accounts. And that’s what worries one of the nation’s largest providers of 401(k) retirement savings plans.
Those stock gains mean older workers may have more equity risk in their portfolio than they realize, and more than recommended for their age, according to Fidelity Investments. The company, which administers 401(k) plans in the U.S. for 21,661 employers with 13.4 million participants, found 27 percent of plan participants from age 55 to 59 years old with stock allocations at least 10 percentage points higher than what it recommends. For those between the ages of 50 and 54, the percentage whose portfolios were judged out of whack was 18 percent.
Part of the concern is that a long rise in the stock market “gives this false sense of continued prosperity,” said Douglas Fisher, senior vice president of workplace retirement policy at Fidelity. It brings about “this wealth effect that happened with our homes before 2008, when we felt like we could use the home as an ATM,” he said. “It’s happened a little in the 401(k) market, where people are taking out more loans, and taking money out just because of the increase in the market.”
Fidelity’s measure of how much stock is appropriate by age is tied to the “glide path” of its target date funds. That’s the term for the transition in asset allocation from a more aggressive, stock-heavy portfolio to a more conservative, bond- laden portfolio as someone nears retirement age. For someone who wants to retire in 17 years, buying Fidelity’s 2030 Freedom Fund at age 50 would mean a starting stock allocation of 84 percent, with 59 percent in U.S. stocks and 25 percent in international stocks. For a 59-year-old wanting to retire at age 67, Fidelity’s 2025 fund starts off with 70 percent in stocks, with 49 percent U.S. and 21 percent international.