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Retirement Planning > Saving for Retirement

Time to Rethink Retirement Investing: T. Rowe Price

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What You Need to Know

  • As 2022 draws to a close, global markets have reached a structural inflection point in terms of liquidity, inflation and interest rates.
  • To find success, retirement investors must embrace new approaches to diversification and risk management.
  • In a more correlated market environment, many retirement investors may need to reset their expectations for fixed income.

A panel of retirement experts convened in New York by T. Rowe Price and presented the firm’s 2023 U.S. Retirement Outlook report in mid-November, sharing findings that show retirement savers are confronting a rapidly shifting investment landscape.

According to the panel, which included a number of senior T. Rowe Price portfolio managers and retirement strategists, the way younger generations think about accumulating and growing wealth is also shifting, and interest in cryptocurrencies and high-flying “meme stocks” has sparked debate and blurred lines between long‑term investing and more speculative investment opportunities.

Overall, according to the panel, the next year will present substantial opportunities for investors who are comfortable taking risk and who are willing to rethink the standard approach to retirement investing.

However, as the panel warned, the emerging environment will also come along with serious pitfalls and perils for the unaware, such that professional advice and support will be essential for positive investor outcomes.

Inflation and Other Hazards

Moving into 2023, working and retired investors face both economic uncertainty and high levels of market volatility, the panelists said. However, they believe that individualized investment advice and professional portfolio management — throughout the journey to and through retirement — can drive successful outcomes.

Many investors have never experienced the economic dynamics seen in late 2021 and into 2022, which included the biggest surge in U.S. consumer inflation since the 1980s, noted Jessica Sclafani, a T. Rowe Price senior defined contribution strategist.

According to Sclafani and the other panelists, inflation can be viewed as the transmission mechanism for all the other risks investors now face. This means the big question hanging over 2023 is whether the U.S. Federal Reserve’s efforts to tame inflation by raising interest rates and shrinking its balance sheet will cause a sharp deceleration in economic and corporate earnings growth and push the U.S. economy into a full‑blown recession.

The panel further warned that, in addition to these cyclical risks, investors also need to consider the possibility that global markets have reached a structural inflection point that will bring an end to the “extraordinary era” of ample liquidity, low inflation and low interest rates that followed the global financial crisis of 2008 and 2009.

As Rachel Weker, senior retirement strategist, pointed out, an era of increased economic and market uncertainty could greatly complicate financial decision making for people in or near retirement, especially for those who are under-saved and need to rely more on the markets.

Beyond 60/40 Portfolios

According to the panel, under‑savers faced with disappointing returns or outright losses in their portfolios can try to work longer than they had planned, put aside more money, take greater investment risk in pursuit of higher returns, or lower their retirement spending plans. Unfortunately, each of these options poses potential challenges for pre-retirees and retirees alike.

As noted by the panel, over the past decade, a passive portfolio of 60% stocks and 40% fixed income proved tough to beat. As we look forward, though, conditions are much more uncertain, and as such, the panel thinks it is critically important for retirement investors to build portfolios with well‑diversified allocations that have the potential to do well across a range of potential market environments.

Kim DeDominicis, target-date portfolio manager, noted that real asset equities potentially can be an effective hedge against unexpected inflation. Over the past decade, as inflation remained low, this type of allocation tended to underperform the broader global equity markets. But, as the panel pointed out, inflation rates have surged recently and remained stubbornly high, and real assets have shown their value.

The panel suggested many retirement investors may need to reset their expectations for fixed income, including both the returns they might receive and the amount of fixed income diversification that they will need. While bond prices may be volatile, the panel explained, one clear positive will be the opportunity for retirees to secure safer, higher-income bonds.

For years, investors could put money into a portfolio that tracked a major U.S. aggregate bond index and have a reasonably good chance of earning positive after‑inflation returns while also hedging against equity volatility. However, the Bloomberg U.S. Aggregate Bond Index had a nearly 15% negative return over the 12-month period ending on Sept. 30, 2022 — marking one of the worst performances on record. Making matters worse, U.S. and global fixed income and equity markets both sold off in tandem during that time period.

According to the T. Rowe Price panel, such conditions highlight the increased importance of fixed income diversification. U.S. investment‑grade bonds still make sense, in their view, as portfolio anchors and can play an important role in adding some potential stability to a multi‑asset portfolio. However, they believe it will be important for most retirement investors to have fixed income exposure that goes beyond such “core” bond holdings, for example by blending in some exposure to international fixed income, high yield bonds, floating rate loans or other more dynamic fixed income strategies.

Savings Gaps Persist

According to the T. Rowe Price experts, retirement savings gaps among different races, ethnicities and genders are well‑understood inequalities that need to be addressed in 2023 and beyond. Broadly speaking, Black and Hispanic Americans lag behind white Americans when it comes to their current level of retirement savings and investments, both in the workplace and in individual accounts.

The T. Rowe Price experts said the steady expansion of 401(k) plans and automatic enrollment into the small-business community and other economic sectors lacking retirement plan access should help address this gap. However, they urged financial advisors to step up and help all Americans understand the importance of an early start with retirement savings.

The speakers cited polling data showing that 38% of white 401(k) participants working with T. Rowe Price said they started saving before age 30, compared with only 18% of Black and 29% of Hispanic participants. More than 30% of Black and Hispanic retirement savers in the analysis didn’t start saving for retirement until age 40 or later.

As the panel pointed out, a late start in saving can have major consequences, and successful retirement outcomes usually depend on starting early, saving at a high enough rate (or increasing that rate over time) and saving consistently.

According to the 2023 outlook report, the savings gap between men and women actually appears to be increasing. While the median 401(k) balance among baby boomer women was 54% of the median for men, the median balance for millennial women was only 35% of the median for their male counterparts.


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