Wealthier In Your 60s: The Penetration-First Growth Playbook

Despite conventional advice focusing on steady saving, the retirement savings landscape reveals a stark shortfall. Median 401(k) balances for those aged 55-64 and 65-74 sit between $185,000 and $200,000 in 2023, far beneath the $1.26 million "magic number" considered essential for a comfortable retirement in 2025. According to Kiplinger's analysis, this gap is compounded by systemic underinvestment, with 54% of households lacking dedicated retirement savings. T. Rowe Price's benchmark suggests having 6 to 11 times your preretirement income saved by age 60; for a $60,000 earner, this means aiming for $360,000 to $660,000 in savings. According to T. Rowe Price's guidance, the median savings fall 70% to 80% short of these targets, highlighting the disconnect between current habits and retirement needs.

To narrow this gap, experts advocate several strategies. Diversifying investments can help outpace inflation and generate growth. Maximizing 401(k) and IRA contributions-including catch-up provisions after age 50-is crucial for boosting savings rates. Balancing risk through age-appropriate portfolios can also improve long-term outcomes. Timing Social Security claims strategically offers another lever; delaying benefits until age 70 can increase monthly payments by up to 32%.

However, these paths face real-world frictions. A widening wealth gap leaves nearly half the population without retirement savings, exacerbating inequality. Inflation continues to erode purchasing power, making it harder to achieve the required returns. While policy interventions could support reforms, their effectiveness remains uncertain without concrete implementation. The systemic underinvestment and macroeconomic risks underscore that closing the gap demands not just individual action but broader structural solutions.

Penetration-First Asset Allocation: Accelerating Growth Levers

The policy shift represented by Executive Order 14330 is unlocking substantial new potential in retirement investing according to RSM US analysis. For decades, 401(k) plans were largely confined to traditional stocks and bonds; now, they can include alternatives like private equity and real estate. This change directly aims to diversify portfolios and bring exclusive investments to the mass market, fundamentally expanding the asset pool.

Asset managers are responding by deploying specialized structures. Collective investment trusts (CITs) and interval funds are becoming the primary vehicles for integrating these alternatives into retirement plans. Their design offers a practical pathway for plan sponsors and managers to navigate the complexities of illiquid assets within a retirement framework.

The growth trajectory hinges significantly on target date funds. Industry expectations suggest these popular retirement solutions will progressively increase allocations to private markets, targeting anywhere from 5% to 20% by 2026. This represents a profound shift in asset class penetration, moving from near-zero to meaningful participation within a few years.

Traditional income generators like REITs and fixed annuities also play a crucial role in this evolving landscape according to InvestGrape's 2025 guide. REITs offer exposure to real estate markets, providing both income and potential appreciation, while fixed annuities offer guaranteed income streams that complement the growth potential of alternatives. Together, they help balance the portfolio's risk-return profile as allocations shift.

The current penetration of alternatives in 401(k)s remains minimal compared to this projected potential, highlighting the vast opportunity ahead. However, realizing this growth faces real friction. The $13 trillion 401(k) market is adapting to new compliance frameworks, and persistent challenges around asset liquidity, valuation transparency, and regulatory complexity remain significant hurdles. Success will depend on managers effectively navigating these issues while delivering consistent, risk-adjusted returns that meet retirement income needs.

Growth Risks & Penetration Constraints

While policy reforms have unlocked new retirement investment avenues, meaningful frictions threaten adoption speed and returns. The executive order permitting private equity, real estate and commodities in 401(k)s faces headwinds from the $13 trillion market's liquidity constraints. Asset managers using collective investment trusts or interval funds still grapple with opaque valuations and regulatory complexity, even as target date funds eye 5–20% private market allocations by 2026. This creates tension between rapid policy implementation and retirees' urgent need for accessible income streams.

Inflation further undermines the thesis by eroding real returns below 3%, directly challenging the conventional 4% withdrawal strategy. With median retirement savings sitting at merely $185,000–$200,000-far short of the $1.26 million "magic number"-inflationary pressure accelerates portfolio depletion. Delayed Social Security claims could boost benefits by up to 32% but do little to address immediate withdrawal needs when portfolios generate sub-3% real returns. The 12–18 month policy rollout window for new fund structures thus clashes with retirees' decade-long income horizons.

These challenges aren't insurmountable. Policy reforms continue to expand access to alternative assets, while diversification remains a core strategy to outpace inflation. The wealth gap affecting 54% of households without dedicated retirement savings also creates tailwinds-employers and advisors must adapt portfolios to deliver risk-adjusted returns that protect purchasing power. Yet until liquidity solutions mature and real returns consistently exceed 3%, the retirement income crisis will outpace policy optimism.

Penetration-Driven Growth Roadmap

The executive order clearing the way for alternative investments in 401(k)s creates a structured path for managers to shift portfolios, though rollout faces real-world friction. Asset managers are now developing phased blueprints to navigate this change while meeting investor needs.

Phase one focuses on maximizing core equity exposure through dividend aristocrats-stocks with a 25-year-plus record of raising payouts-as a stable growth and income foundation. This strategy, highlighted in retirement planning guidance, aims to boost stock allocations to 70% across target-date funds while smoothing volatility according to InvestGrape's 2025 guide. The logic: established dividend payers historically withstand market cycles better, offering predictable cash flow during retirement years.

Phase two will gradually introduce alternatives, targeting 10% allocations via collective investment trusts (CITs) as policy implementation progresses. These CITs, favored for their tax efficiency and lower fees, will initially focus on private equity and real estate according to RSM US analysis. Managers expect this segment to reach 5–20% of holdings by 2026, depending on fund risk profiles.

However, the transition faces hurdles: CIT valuations remain opaque during market stress, and illiquidity risks could strain withdrawals if redemption demands spike.

Phase three introduces dynamic withdrawal rules tied to alternative asset performance. When REITs or fixed annuities hit penetration targets, managers will adjust withdrawal rates to optimize tax efficiency-reducing taxable distributions during strong alternative asset gains. This requires precise coordination between portfolio managers and retirement planning algorithms to avoid breaching regulatory minimum distributions.

Key constraints persist. Liquidity buffers must grow alongside alternative investments; a 30% drop in CIT valuations could force emergency liquidations unless cash reserves rise. Withdrawal mechanisms also face friction: annuity access requires lengthy surrender periods, while REIT redemptions may be quarterly rather than daily. Until these systems mature, managers are cautious-keeping alternative allocations below 15% in conservative funds.