As of last Dec. 31, 65 percent of those in their 20s had allocated more than 80 percent of their 401(k) plans to stocks, up from 48 percent who were that heavily stock-weighted six years earlier, according to the Investment Company Institute and Employee Benefit Research Institute.
"[That's] a statistic that ought to concern millennials and those who care about their financial well-being," writes Janet Novack, Washington, D.C. bureau chief for Forbes
Rob Arnott, CEO of money manager Research Affiliates, is concerned.
Young workers are attracted to 401(k)s by automatic enrollment and employer matching. The regular paycheck deductions, combined with onerous student debt obligations, are leaving them short of emergency funds, he writes in a commentary
with his colleague Lillian Wu.
So the young workers end up using their 401(k)s as emergency funds. A recent Fidelity Investments study showed that 44 percent of workers in their 20s and 38 percent of those in their 30s liquidate their 401(k)s when they lose or leave their jobs. That costs them their tax benefits plus a 10 percent early distribution penalty.
"We might lecture them and wag a finger and say you shouldn't do this, but they will," Arnott told Novack.
"People say you might as well start them with high risk, because the downside isn't that great in the grand scheme of things," since they don't have that much in their 401(k)s, he added. "But if that's all the money you've got, the downside is great."
Meanwhile, more than half the country's pre-retirement households—52 percent to be exact—are at risk of being unable to maintain their current living standards when they retire, according the Center for Retirement Research at Boston College.
That estimate is for 2013 and is little changed from 53 percent in 2010, but well above the 31 percent level for 1983.
"Our expectation was that the index would improve sharply in 2013," Alicia Munnell, the Center's director, wrote in an article for MarketWatch
. "Many Americans need to save more and/or work longer."
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