Sticking with Stocks, Even in Retirement

Most workers and retirees don’t follow their own investing advice


Retired Americans have less money in the stock market than current workers, but they didn’t abandon equities completely when they left the workforce. Two-thirds of retired investors (67 percent) continue to hold at least some equities in their portfolio, only slightly less than the 75 percent of all retirement savers who hold stocks, according to a recent Vanguard survey of 3,012 Americans between ages 21 to 79 with $5,000 or more in savings and investments. However, the oldest workers and retirees allocate less of their savings to more risky investments. For example, the average 70-something has 49 percent of their savings in equities, compared to 57 percent for those in their 30s.

[See To Stay Safe, Sell Stocks?]

Workers approaching retirement age were the most likely to have pulled out of the stock market since 2008. Some 40 percent of those within 5 years of retirement shifted part of their savings out of equities, compared to 26 percent of investors overall. Those who experienced a job loss, mortgage problems, or a foreclosure were also more likely than the typical saver to sell their stocks. Conversely, about 17 percent of investors saw the market drop as an opportunity to buy stocks at bargain prices.

Almost all the survey respondents (90 percent) said households should hold some stocks in the years leading up to retirement, and 70 percent believe that stocks should also be held after leaving the workforce. Most investors, however, felt that stock exposure should be gradually reduced as the desired retirement date approaches (59 percent) or upon retirement (53 percent). Less than a quarter of the savers said that risky investments should remain unchanged leading up to (23 percent) and in retirement (16 percent).

[See How Much Should Retirees Allocate to Equities?]

Yet, few retirement savers follow their own advice. Many of the investors in the survey hold a larger exposure to stocks in their current portfolio than they would recommend to others. For example, 30 percent of investors say a conservative asset allocation of 20 to 39 percent in equities is the most appropriate for households like their own, but only 19 percent report having that amount in stocks. And while 15 percent of the survey respondents currently take the risky stance of keeping 80 percent or more of their savings in stocks, only 7 percent would recommend that others take such dramatic risks.

[See What If the Stock Market Never Recovers?]

Perhaps these investors feel comfortable taking on risk because they are relatively optimistic about future returns. The median investor in the survey expects a long-term equity market return of 7.5 percent and that the Dow Jones Industrial Average will attain its prior peak of 14,165, (reached on Oct. 9, 2007) within 4 to 6 years. But a sizeable minority of retirement savers have serious doubts about future growth. A third of investors anticipate future returns of 5 percent or less and 14 percent think it will take the Dow 10 years or more to recover.