More than one-third of baby boomers have too much stock-market exposure. What’s the right amount?

As baby boomers enter retirement, it might be time to pump the brakes a bit on stockholdings.

Currently, 37% of baby boomers have more equity holdings than Fidelity Investments would recommend for their stage in life, said Mike Shamrell, vice president of thought leadership at Fidelity.

Baby boomers are those born between 1946 and 1964 and are nearing or in retirement.

The average percentage of equity baby boomers have in their Fidelity retirement accounts is 65.8% as of the second quarter. This number is within the suggested range of equity between 47% to 67%, according to Fidelity.

However, the note of caution goes to the 37% of baby boomers with heavier equities exposure. They may need to rebalance after recent gains in the market, Shamrell said. The S&P 500 is up about 17% so far this year.

Derek Pszenny, co-founder of Carolina Wealth Management, said retirees need to weigh all the risks such as the longevity risk of outliving your money, inflation, and what’s a sustainable amount of money to withdraw from your retirement account. 

“Investing is time-dependent, not necessarily age-dependent,” Pszenny said. “The more you withdraw, the more equity exposure you need to have.” 

The amount of equity holdings Fidelity suggests isn’t an exact number, but rather a range within 10% of the Fidelity Equity Glide Path calculation. There’s a tool that calculates the time to retirement and the various portfolio breakdown a near-retiree should have.

For example, if you want to retire in 10 years, the tool shows that the Fidelity Freedom 2035 currently has 79% equity. That means if your own portfolio has between 69% and 89% equity, you are considered to have the appropriate level of stock-market exposure for your time until retirement.

“These are just suggested levels. Everyone is different. Everyone has different goals. These are recommendations,” Shamrell said. “Take a look and see what level allows you to sleep at night.”

Baby boomers may still have pensions, in addition to their 401(k) plans, as well as other investments such as real estate. Since this demographic entered the workforce before 401(k) accounts, auto-enrollment and target-date funds came on board, they may be more off track compared with younger investors, Shamrell said.

Fidelity said its target-date funds predict an investor’s plan of retirement through their lifetime, not just to their actual retirement date. 

“An investor could live 15, 20 or more years in retirement. You want to be careful not to outlive your money,” Shamrell said.

The general rule of thumb in the investment industry is investors should reduce their exposure to equities as they get closer to their retirement goal. For baby boomers approaching retirement, that means shifting holdings away from stocks and toward bonds or cash, according to the Vanguard Group, another investment adviser. 

“While age may influence asset allocation mix, it’s important not to get caught up in averages and trends. There’s no such thing as an average investor, so to determine the best asset allocation mix, investors – regardless of age – should consider their goals, time horizon … and their risk tolerance,” said Nilay Gandhi, a senior wealth adviser with Vanguard.

“For investors concerned about if and when to pivot, it may be time to tap a financial adviser. Timing retirement can be tricky,” Gandhi said.

For the typical retiree, Pszenny recommends 50% to 75% equities exposure with a 4% to 5% annual withdrawal rate. 

“I feel pretty confident that they could meet their retirement goal and won’t run out,” Pszenny said.

Pszenny said he’s not a fan of target-date funds because people often don’t understand the time frame in the funds – does it get you to your retirement date or through your lifetime?

“The most important investment decision is the asset allocation decision. Each person should decide for themselves the amount of equities they hold and how it’s allocated,” Pszenny said.

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