How the Fed Has Warped the 401(k)

via Wall Street Journal

Seven years of near-zero interest rates has created a serious problem for retirees and those nearing retirement. When interest rates finally start to rise, the rest of the investment marketplace—and the Federal Reserve—will feel the pain.

In place of the Treasurys and investment-grade corporate bonds that had been the hallmark of retirement investment strategy for decades, current retirees, and those soon to retire, have resorted to investing in equities and high-yield corporate bonds to generate the returns they need to avoid outliving their nest eggs.

A recent report from Fidelity Investments found that 11% of its 401(k) account holders aged 50-54 had a staggering 100% of their retirement assets invested in stocks. All told, 18% of the firm’s retirement account holders in that age bracket had a stock allocation at least 10 percentage points or higher than recommended. That figure increased to 27% among people ages 55-59. But with 10-year U.S. Treasury yields averaging 2.3% over the past five years, retirement-age investors have had few alternatives.

Read the full article here

About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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