In the Loop

Role of fixed income varies with investor age

March 22 2024
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Michael Doshier

Plan sponsors and advisors both are starting to think about this and one more level of sophistication than they used to. It used to be a question of what does fixed income do?

Gillian Kemmerer

With 62% of retirement plan assets held by investors nearing retirement? What role should fixed income play in a retirement portfolio? 

Michael Doshier

Yeah, I tell you what some research we've done lately shows me that plan sponsors and advisors both are starting to think about this and one more level of sophistication than they used to. It used to be a question of what does fixed income do? And then all of a sudden you woke up and went, Well, I've got 62% of those assets belong to people that are 50 or older are approaching retirement, are their needs for fixed income different than your average 25 or 30 year old? And I think we quickly woke up to the fact that the answer to that is yes. Right. 

So I think the answer is twofold. I would make sure that you continue to think about your broad, mostly younger and middle age type of participants and think about the fixed income need, primarily from a diversification and a total return perspective. But for older participants, especially if you believe that retirement income inside of DC plans is a growing desire and need, you should think about that from a slightly different perspective, diversification, yes, but more from a capital preservation perspective and generating income. If these products whether the money market or the stable value product that's already in a plan lineup, or some short term debt instruments, some short term fixed income, are going to play a role in a retired person's portfolio that they're driving income out of the paycheck replacement and retirement, then you've got to be thinking about it in a fairly nuanced fashion for that group.

Retirement plan participants preparing for retirement should have access to fixed income solutions that are flexible enough to address an individual’s particular needs and circumstances, including age. Younger investors tend to have fewer assets in fixed income investments, and they should primarily consider the diversification and total return potential of their fixed income options. Older investors, on the other hand, tend to be more concerned with market volatility and the stability, and typically allocation more to fixed income investments. Diversification remains a key consideration, but capital preservation and income generation become more important. As a result, retirement plan participants should have access to fixed income solutions that are flexible enough to address an individual’s changing needs and circumstances over the course of a lifetime.

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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the speaker as of March 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

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Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

All investments involve risk, including possible loss of principal. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall.

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202403-3466479

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