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Market volatility can test even the most well-structured retirement plans. When stocks fluctuate and bonds fall short, what once felt like a balanced portfolio can suddenly look fragile. High-income earners who have followed the traditional playbook of maximizing 401(k) contributions and holding a mix of stocks and bonds are starting to ask a tough but necessary question: Is conventional diversification still enough to achieve long-term goals?
Thanks to recent policy changes, certain private investments can now be included in qualified retirement plans. For high-income earners, this opens the door to a broader range of options, some of which have the potential to reduce portfolio volatility and improve long-term outcomes.
That said, this isn’t a plug-and-play solution. Integrating alternatives into a retirement strategy requires careful planning, the right structure and an advisor who understands both the risks and opportunities.
What you will learn
Traditional retirement strategies may no longer be enough. High income earners wonder whether the classic mix of stocks and bonds still offers sufficient protection and growth in today’s volatile markets.
New policies increase access to private investment. Recent changes allow certain private assets, such as private equity and real estate, to be included in qualified retirement plans, providing opportunities for improved diversification and long-term returns.
Private investments involve trade-offs. While they can improve performance, they often entail higher fees, reduced liquidity and longer lock-up periods, factors that require careful consideration.
Not all accounts offer the same flexibility. IRAs, self-directed accounts and Solo 401(k)s may offer more access to private investment options than traditional workplace plans.
Fit is more important than flash. Alternatives can be a powerful tool if they align with your financial goals, timeline and risk tolerance, but they are not a one-size-fits-all solution.
Rethinking the pension formula
Most retirement plans today still rely heavily on the same core ingredients: tax-advantaged accounts, a mix of stocks and bonds, and a long-term, stay-the-course mentality. It’s a framework that has worked well in the past, but isn’t built for today’s realities.
Traditional plans assumed a level of stability that no longer exists. Employer pensions are rare, markets are more volatile and retirement can now last thirty years or more. In this environment, even high earners are discovering that conventional strategies may no longer be enough to achieve their financial goals or protect themselves from the risks ahead. [1]
The numbers tell the story: The average Generation X household, now in its peak earning years, has just $40,000 in retirement savings, while the average is around $243,000. Even those with strong incomes are realizing that traditional strategies are no longer generating the returns they once did. It is expected that half of American households will fail to maintain their current standard of living after retirement, even if they continue to work until age 65. [1]
It’s no wonder that investors are reconsidering what “retirement ready” really means and exploring new, carefully managed alternatives that can help close this gap. That gap between expectation and reality has paved the way for a major shift in the way pension investing works.
How private investments expand retirement plan options
Until recently, private market investments, including private equity, private credit, infrastructure and real estate, were almost exclusively reserved for institutional and ultra-high net worth investors. But that is changing. A new executive order has paved the way for retirement plans that include a broader mix of private investments, putting a long-standing retirement strategy within reach for individual investors. For decades, large pension and university endowments have relied on alternatives to reduce volatility and improve long-term returns, outperforming traditional 401(k) plans by an average of about 0.5% per year. [2]
Major players among financial institutions are already stepping in and working with asset managers to provide pension plan participants with access to private market strategies. BlackRock estimates that adding private wealth could increase 401(k) balances by as much as 15% over 40 years. Historically, private equity has delivered approximately 14% annualized returns over the past two decades, compared to just over 8% for the global public equity index. [3, 4]
For investors seeking greater stability and diversification in uncertain markets, these developments represent a crucial shift: an opportunity to modernize retirement portfolios with instruments that were once off-limits to ordinary investors. That said, this is not without complexity or risk.
How to evaluate alternative investments in your retirement plan
It’s easy to get caught up in the buzz surrounding alternative investments, but a thoughtful approach is essential. Not every option is right for every investor, and it’s critical that you know what’s available (and appropriate) for your situation.
While certain private investments can stabilize performance over time, others may involve more risk, higher fees, or limited access to your funds. Transparency and liquidity are important points of attention. Unlike publicly traded companies, private companies do not have the same reporting requirements, and many private investments have multi-year “lock-up” periods during which your money is not easily accessible. That can be a problem if you need flexibility, especially in retirement.
If your 401(k) plan has limited options, your IRA may offer more flexibility. Investors with a Schwab Personal Choice Retirement Account (PCRA) or a Self-Directed IRA often have access to a broader range of private options. Solo business owners and 1099 commercial real estate professionals may also consider a Solo 401(k), which allows for a broader investment menu, including private funds.
The bottom line: Alternatives can be a smart addition to a well-designed retirement plan, but only if they fit your goals, timeline and risk tolerance. If you’re curious, let’s discuss whether alternative investments are a good fit for your goals. We help you explore options designed to strengthen your portfolio, maintain flexibility, and keep your long-term plan on track.
Sources:
- https://www.forbes.com/sites/dandoonan/2024/04/11/americans-are-worried-about-retirement-savings-and-they-should-be/
- https://thehill.com/business/personal-finance/5425719-access-to-401ks-couldnt-come-at-a-better-time-for-private-equity/
- https://www.napa-net.org/news/2025/5/empower-to-offer-private-investments-in-401ks-ceo-ed-murphy-explains-why/
- https://www.plansponsor.com/missionsquare-income-america-debut-in-plan-retirement-income-solution/
This article was originally published here and is republished on Wealthtender with permission.
About the author
Sean Gerlin, CFP®, CPWA®, ChFC®, CLU®
Creating clarity from complexity
Sean Gerlin, CFP®, CPWA®, ChFC®, CLU®
| Imagine wealth planners
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