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.