Private credit used to be exclusively available to pension funds, endowments, and wealthy individuals. Today, it is available to retail investors in their brokerage accounts, individual retirement accounts (IRAs), or 401(k) plans through interval funds, business development companies, and exchange-traded funds.

In a market where retirees seek reliable income streams, such products are becoming more popular. This is because private credit offers better returns than government bonds, lower volatility than equities, and access to a rapidly growing financial sector.

However, most investments are more illiquid than investors realize. Restrictions on redemptions from several large private credit funds revealed an issue that retirees are unaware of until they try to withdraw their funds.

Key Takeaways

  • Private credit is rapidly expanding into brokerage and retirement accounts as retail investors search for higher yields and alternatives to traditional fixed income.
  • While retail investors expect easy access to funds when needed, private credits are often long-term and difficult to convert to cash.
  • Before investing, retirement savers should carefully review redemption limits, leverage, valuation practices, fees, and whether they can afford to keep their capital locked up for several years.

What is Private Credit? 

Private credit refers to loans made directly to corporations by non-bank lenders such as asset managers, rather than through public bond markets or banks. It is offered to medium-sized businesses, private equity-owned companies, or those seeking an alternative access to funds besides banking channels.

Why Private Credit is Moving into Retirement Accounts

As banks continue pulling back from certain forms of lending after the 2008 financial crisis, the private credit market has grown into a $1.5–$2 trillion asset class and is projected to exceed $3 trillion by 2028.

Asset managers such as BlackRock (NYSE:BLK), Apollo Global Management (NYSE:APO), Ares Management (NYSE:ARES), and Blue Owl Capital (NYSE:OWL) are expanding private credit offerings aimed at retail investors, who collectively hold trillions in brokerage accounts and retirement savings.

This is because:

  • Higher interest rates increased yields on private loans
  • Investors want alternatives to volatile stock markets
  • Asset managers want access to retail capital
  • Technology platforms now make alternative investments easier to distribute

The Liquidity Mismatch Problem

Private credit relies on negotiated terms and longer holding periods (usually three to seven years). It is difficult to convert to cash because there is no active secondary market where a fund manager can quickly sell a loan. This can result in delayed withdrawals, redemption limits, or temporary restrictions, particularly when many investors want their money back at the same time. 

Nevertheless, investors are often given the impression that they can withdraw their money every month or quarter. 

Interval funds address this by limiting redemptions. A typical fund might allow investors to redeem no more than 5% of net assets per quarter. 

However, if there are rising interest rates, a credit downturn, or broader financial anxiety, more investors tend to request redemptions at the same time. 

For instance, in Q1 of 2026, several major private credit funds limited withdrawals after redemption requests exceeded $20 billion. Investors seeking liquidity withdraw a portion of their money while the remainder stays locked in the funds until the next cycle of requests is granted.

J.P. Morgan Private Bank warned that elevated redemption activity is expected to continue through at least the first half of 2026. The firm noted that gates and redemption queues, while sometimes necessary to protect long-term investors, remain poorly understood by many retail participants.

What Makes the Liquidity Trap Dangerous for Retirement Savers

Private credit does offer higher yields than comparable public fixed income. Direct lending has historically returned around 9% annually, versus roughly 5.5% for leveraged loans and 5.2% for high-yield bonds. 

However, this could be a trap when retirees assume they can quickly access funds for:

  • Required minimum distributions
  • Emergency expenses
  • Healthcare costs
  • Portfolio rebalancing
  • Market downturns

During periods of stress, private credit funds can temporarily restrict withdrawals exactly when investors most want liquidity. An investor with decades before retirement may tolerate limited access to capital, whereas someone nearing retirement may not have that flexibility.

In addition, redemption requests could take multiple quarters to complete. This does not automatically make private credit unsafe, but IRA investors should align these products with long-term capital they may not need immediately.

What Investors Should Do Before Adding Private Credit to an IRA

If you are considering a private credit fund through your brokerage or retirement account, work through these steps before committing capital.

  1. Read the redemption terms: Carefully review the information provided about the redemption frequency, withdrawal caps, lock-up periods, and gate provisions. 
  2. Check the leverage ratio: Determine how much of the fund’s portfolio is financed with borrowed money. Higher leverage means higher potential returns but also faster losses in a downturn.
  3. Understand the valuation method: Ask how often the fund revalues its loan portfolio and who performs that valuation. Independent third-party valuations are a stronger safeguard than internal estimates.
  4. Evaluate the charges: Private credit funds typically carry management fees of 1-1.5% plus performance fees. These layered fees reduce net returns over time.
  5. Match investments to time horizon: If you may need access to this capital within two to three years, illiquid private credit vehicles are not recommended, regardless of the stated yield.

Bottom Line

Private credit is the new appeal for retirement savings, offering retail investors access to higher yields and a growing alternative asset class once reserved for institutions. However, the income potential comes with liquidity risk. 

Many private credit funds invest in long-term, hard-to-sell loans, enabling periodic withdrawals that may become restricted during market stress. For retirement savers, the key issue is not just how much these funds can earn, but how easily capital can be accessed when it is needed most. 

Investors considering private credit should carefully evaluate redemption rules, leverage, valuation practices, fees, and their own time horizon before treating these products as reliable retirement income solutions.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.