Americans are more financially prepared for retirement than they were just a few years ago, recent research found.
One of the reasons for that good news might be bad.
Many people approaching retirement age today are heavily invested in stocks, potentially leaving their savings vulnerable to the next recession.
"If there was a market downturn, they could lose a significant chunk of what they've worked so hard to save," said Meghan Murphy, the vice president of thought leadership at Fidelity.
Roughly half of baby boomers have their 401(k) plans invested in riskier allocations than Fidelity suggests for their age group, Murphy said. (Fidelity recommends having around 54 percent in stocks and the rest in bonds, money market funds or certificates of deposit.)
Eight percent of baby boomers have their entire 401(k) holdings in equities.
The potential issues extend beyond workplace accounts.
In 2015 nearly 30 percent of individual retirement accounts were more than 90 percent invested in equities — what the Employee Benefit Research Institute diagnoses as an "extreme allocation."
Roth IRA accounts among people 65 to 84 were more than 63 percent invested in equities, according to the Institute.
"We've found that as you get older, there's really little decrease in the percentage of stock you hold," said Jack VanDerhei, research director at the Employee Benefit Research Institute.
The extra risk in people's retirement accounts might not have ended up there on purpose, Murphy said.
The S&P 500 index rose more than 200 percent over the last decade. As a result, stocks have taken on a greater role in many portfolios. "People love to see the market go up," Murphy said, "but you need to watch your equity exposure, too."
That diligence might be especially required of baby boomers, who are more likely to be "do-it-yourself" investors, Murphy said.
Indeed, baby boomers are the generation least likely to store their money in target-based funds, which automatically shift from aggressive to conservative investments as the person inches closer to retirement. Nearly 70 percent of millennials are invested in them, compared with 36 percent of baby boomers, according to Fidelity.
For some older investors, the decision to stay in the market in a significant way is likely deliberate, said retirement savings expert Ed Slott.
"Baby boomers are more likely to live to 90 or 100," Slott said. "Some may feel, 'I'm getting close to retirement, but I'm still in it for the long haul.'"
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