Retirement account balances cruised to record levels in the decade since the Great Recession's market bottom, which is great news if you are 70-something and less so if you are younger.
People about to retire could be positioned for disaster if the long bull market ushers in big losses in those critical first few years of portfolio drawdowns.
"It's only reasonable to start preparing, both mentally and financially, for a market that goes down and stays down," Christine Benz, personal finance director for Morningstar, warned recently.
Benz advises retirees to commit two years' worth of retirement income to cash, another eight years to bonds and the remainder to stock holdings. To further cushion the nest egg, she recently suggested that retirees make sure they are diversified across different asset classes and to consider some so-called low-volatility investments, such as exchange-traded funds focusing on companies with strong dividend track records.
Not everyone agrees bonds are safe, but the current pause on rate hikes and overall economic sentiment is creating some attractive yield on high quality, short-term bonds, investment experts say.
Your own best strategy will vary widely, but the sentiment about being aware of how much risk you are carrying is particularly important now.
Nearly 22% of employees in workplace savings plans are invested too aggressively, a recent Fidelity Investments report found. And baby boomers are the most likely to have too much invested in higher-risk securities.
Overall, the Fidelity report shows that for people who have access to a workplace retirement plan, the numbers are getting better:
• Total savings rates — employees' and employers' contributions combined — reached 13.5% in the first three months of 2019.
• Boomers' average balances grew to $357,200, an increase of 367% in the decade since the market bottom in 2009. Two-thirds of that gain was due to market performance.
• Gen X savers accrued an average balance of $268,900, up 626%, with 57% of the gain attributed to market performance vs. contributions.
• The average millennial account grew to $129,800, driven by contributions.
Concerned about measuring up? Fidelity suggests saving three times your current income by age 40 and 10 times income by age 67, though these are very rough guidelines. Workers with long education paths or lower-income workers whose retirement will be covered mostly by Social Security will have different paths.
Janet Kidd Stewart writes for Tribune Content Agency.
