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By Adam Zoll and Christine Benz | 09-30-2013 02:00 PM

Fidelity: Retirement Savers Need More Stocks

Fidelity's target-date fund series shifts more into equities. Plus, the persistent gender gap in investing, and why wealthier retirees feel poorer.

Adam Zoll: For Morningstar, I'm Adam Zoll, and welcome to The Retirement Radar.

A major fund company has decided that people saving for retirement need to allocate more toward stocks. Here to discuss this and other trends involving retirement is Christine Benz, Morningstar's director of personal finance.

Christine, thanks for being here.

Christine Benz: Adam, great to be here.

Zoll: So, the fund company in question is Fidelity. They've decided to change their allocation to stocks in their target-date series. What can you tell us about the changes and how it compares to other fund companies' target-date series?

Benz: In some respects, Adam, Fidelity is really bringing its equity weightings in line with some of the other big shops. So, T. Rowe Price, for example, that's one of Morningstar's favorite target-date series providers, has long had a pretty heavy equity allocation relative to other target-date funds. Vanguard has historically been somewhere in the middle, but Fidelity's funds have been a little bit equity-light.

So, in the Fidelity 2020 Fund, for example, they will take the equity weighting up from 53% currently to 61% currently.

Zoll: So is this change just about keeping up with the other target-date series, or is there something else underlying that?

Benz: Something else. Fidelity pointed to a couple of specific things. One thing it looked at is the fact that people are staying retired much longer than they once did. The typical retirement is something like 30 years for many people. So, the higher equity allocation is justified, because people need that growth potential during so many years.

The other big factor is that a lot of the assumptions that Fidelity and other investment providers had been using revolved around an earlier starting date for the participant's savings. They were assuming that people would start saving in earnest once they were 22 and got that first job. Well, in reality what they saw when they looked at their participant data was that people really didn't begin saving in earnest until they were a little later in their career progression. So, maybe in the neighborhood of 30 years.

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