Why Retirees Can’t Let Go of Their Stock Market Habits

Senior man using a calculator while reviewing his budget
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Retirees have been facing some difficult decisions lately due to sticky inflation and soaring rates that have been putting a strain on their wallets and retirement planning. Some are actually “unretiring,” some are deciding to push back their retirement and some are not even sure whether they will retire at all. Yet, there is a common — and surprising — common thread among American retirees: They can’t seem to let go of their stock market habits.

Indeed, a recent Gallup survey found that stock ownership rates among most key demographic groups are essentially back to where they were in 2008. One notable exception is among older Americans, ages 65 and older. For that cohort, almost two-thirds (63%) own stocks, which is up from 53% for Americans in that same age group prior to the Great Recession — 2001 through 2007 — Gallup found.  

While this is particularly striking as it goes against the idea of having to go into safer assets, such as bonds, when you approach retirement, one underlying factor of that trend is longer life expectancy.  

What’s Driving Retirees’ Decisions

“Older Americans may be holding on to their equity portfolios in recognition of the fact that they will probably live much longer than anticipated,” said Peter C. Earle, an economist at the American Institute for Economic Research

“Age milestones which have served as anchors for retirement decisions–62 and 65, for example–now lag actual longevity by decades,” Earle said. “Increases in lifespan and higher quality of life at advanced ages are benefits of a productive, scientifically advanced age, but bring a real possibility of running out of money.”

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Another reason is the views around retirement age have changed. For instance, a recent Allianz Life survey found that a whopping 61% of pre-retirees are more afraid of running out of money in retirement than dying. In turn, this new “retirement reality” has fundamentally shifted the long-term outlook for many Americans.

“Maybe people want to work longer or have to work longer, but either way, I think they have a longer runway than generations past. I think the number one fear that people have in that stage of life is outliving their money. If markets are doing well, they might be reaching for returns so that they can reach whatever number they want to hit so that they can reach retirement,” said Michael Wagner, co-founder of Omnia Family Wealth.

Yet, Wagner added that he is not recommending these aggressive allocations to his older clients.

“I am a little bearish on markets because people are doing things like putting so much of their retirement plans into stocks,” he said. “In my world, we’re here to keep people wealthy, and we’re probably at about 40% equity which is low. For the older clients that we work with, we would typically be doing less in equities and doing more in private credit, where we are taking risks but I think we’re better compensated for the risks that we’re taking.”

On the other hand, other experts argue that owning stocks is one of the best ways to generate wealth over the long run, noting, however, that because they are riskier than other investments, such as bonds, they are not a short-term play.

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“Even after we retire, our time horizon remains at least 10-30 years, which means that we should still own stocks,” said Dejan Ilijevski, president at SCM Investment Services.

Ilijevski added that while stocks diversify portfolios, offer the highest expected returns and are a great investment even during retirement, the ratio of stocks and bonds depends on each investor and their capacity and tolerance for risk.

Finally, in terms of how retirees should be allocated, views vary, but experts say that everyone should plan well ahead.

Transitioning from a steady income to living off savings, all while trying to avoid making any mistakes with investments and Social Security, makes the market swings especially daunting, said Kendall Meade, CFP at SoFi.

In turn, Meade said they recommend making sure they have an appropriate allocation for their time frame or risk level. 

“In retirement, you may prefer to hold a greater portion of less risky assets, like bonds, cash, and cash equivalents,” Meade said. “If the market drops, they are less likely to drop with it as they are less volatile. This doesn’t mean that you should not hold any stocks though. Keep in mind, your savings may need to last you another 20-30 years in retirement, and while stocks are more volatile, they also tend to have the highest return over time. By being too conservative, you may run the risk of running out of money sooner.”

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