The 10th Man

What Should My Asset Allocation Be in Retirement?

September 27, 2018

This question needs to be addressed, especially after a long bull run in the stock market. It was also asked a lot in the personal finance survey you guys filled in.

Let me lead with the conventional wisdom: your percentage allocation to bonds should be approximately equivalent to your age. So if you are 70 years old, you should have a 70 percent allocation to bonds.

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In general, I think people should almost always have a higher allocation to bonds. Whatever you think your allocation to bonds should be, double or triple it.

I know first-hand that some financial advisors are keeping some of their older clients fully invested in the stock market well into retirement. I consider that to be financial malpractice. A 72-year-old grandparent does not need an allocation to aggressive growth.

Here’s why: when you are in retirement, you are no longer accumulating assets. You are decumulating assets. If you have an IRA, this is required by law—you are forced to sell a piece every year. An economist would say that you are selling investments to pay for consumption.

And consuming is exactly what you should be doing when you sell stocks and bonds in retirement: traveling to Europe and staying in an Airbnb for a month. This is the whole point of why you save and invest—so you can fully enjoy it at the end. My philosophy.

John Mauldin

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The Thing About Decumulating Assets

Of course, you want the assets to actually be there when you decumulate. Yes, there are instances where bonds are not safe. But bonds are generally safer, unless you are talking about high yield or emerging market debt.

I can see where this is going in the comments section—sure, in extraordinary circumstances, you could have a situation where an investment grade corporate bond fund loses 15-20% in value. Still better than what could happen to stocks in similar circumstances.

The point of target retirement date funds is that your portfolio mix goes from aggressive to conservative over time, so you are sure you have something at the end.

That’s why you don’t buy aggressive growth in your eighth decade, only to watch helplessly as it takes a giant dirtnap, forcing you to curtail consumption in your golden years—or leave less for your heirs. Bear markets are terrible things. People are pretty glib about them, nowadays, because it’s been so long since we’ve had one.

I am a bit like the Jiminy Cricket of asset allocation. I am very, very conservative. I make mistakes all the time. I prefer them to be small—the best a lot of people can hope for is to not make any big mistakes. A financial advisor worth his salt will not blow up his clients on stupid stuff.

NONE OF THIS IS NEW. This is what passed for conventional wisdom for years. But it’s a bull market, and people are getting aggressive. This letter has a great many readers in retirement. I would bet that up to half of them have an allocation to stocks of over 50 percent. No offense, Baby Boomers—you guys are not the best risk-takers in the world.

How do I know this? See below.

Source: The Daily Shot

Equities now make up a larger portion of household net worth than residential real estate. People are gorked up on stocks. As you can see, this happened a couple of times before—both resulting in bear markets.

If you bought a growth stock like Amazon or a growth mutual fund, you have watched it grow to the sky over the last ten years. It makes up a large percentage of your portfolio. Sell when you can, not when you have to.

Start Thinking like a Bond Investor

I think that if you are in retirement—particularly if you are age 70-75 and up, your allocation to equities should be pretty close to zero. This is currently not the case.

For years, people were incentivized to load up on dividend stocks—because they were yielding more than bonds! Soon, that might not be the case. And the dividend stocks themselves are very overvalued.

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The sad truth is that there aren’t many options. Stocks are expensive. Bonds are not so cheap, either. I can envision a scenario where all financial assets fall together.

Always think of the worst-case scenario: if that happens, you want exposure to the least worst option. Stock investors are optimists. Start thinking like a bond investor—a pessimist.

Jared Dillian
Jared Dillian


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Darren Sokoloski

Oct. 12, 2018, 11:44 p.m.


Is paying down real estate debt (mortgage) equivalent to investing in bonds?  If a mortgage is just a negative bond, what is the duration of a mortgage?

Stuart Harnden

Sep. 29, 2018, 2:27 p.m.

Hi Jared,

Thanks for answering one of mine and other’s question about allocation.  I not only agree with you, my portfolio, IRA, wife’s IRA, are set up that way.  85% of our assets are in treasuries, CD’s, cash, and are insured by the FDIC or US Government, earning over 5.2% current income.  True, governments may default, but if they do, there won’t be anything left in any other markets either, we will be in total collapse.  And at 75 years old, I don’t have 20, 30 years to wait to recoup huge losses.  The number of stocks has decreased in the US from about 7600 to about 3900, millennials have no driving interest to own stocks, fewer than 20% of the population own stocks…doesn’t sound like a solid future to me. I look at Japan whose market has never been half the high it was in 1990, 28 years ago, and that’s all I need to see. 

I’ll take a little less in bonds and consider the difference a “safety premium”.


Stuart B. Harnden

Sep. 29, 2018, 8:23 a.m.

Are USA bonds a good choice when the great debt reset strikes?

Sep. 27, 2018, 4:51 p.m.

Well said.  My only comment regarding my 92 year old mother’s retirement savings (which she never touches or needs) is that in reality, it is her 4 children’s inheritance.  So given that, I’ve managed the savings for the 50 year old children, treating it as their retirement savings, and thus, have it in a 50/50ish allocation. 
Makes sense?

Sep. 27, 2018, 3:44 p.m.

Great food for thought Jared.  Academic research by Wade D. Pfau Professor of Retirement Income at The American College indicates that starting retirement with a very conservative asset allocation and gradually increasing equities as you age has the potential to reduce the probability of portfolio failure and the magnitude of failure.  As counter-intuitive as this seems it makes sense because a market crash early in retirement while assets are being consumed can be unrecoverable within the retirement horizon, but may not matter as much as the life horizon shortens. Full research paper at .  Any thoughts on that approach?

William Bengen

Sep. 27, 2018, 3:19 p.m.

Hi Jared,

  I am a subscriber to ETF 20/20 and really enjoy it. I have a learned a lot from your writing.

  However, I have to respectfully disagree with your conclusion, however, that a retiree’s bond allocation should match their age. To establish my credibility on this topic, I offer that I have studied this topic for about twenty-five years. I am the discoverer of the so-called “4% retirement withdrawal rule”, and have published a book on the topic, which you can find on

  My conclusion is that retirement investors should maintain a 50% stock/50% fixed income allocation throughout retirement to maximize the withdrawal rate from their retirement plans (which I currently compute as 4.5%, not 4%). If you hold less in stocks and more in bonds, your withdrawal rate will suffer. I have verified this using 90 years of historical investment data.

  Recent research by others suggests that retirees should actually increase their stock allocation (and correspondingly reduce their bond allocation) during retirement. I haven’t verified that conclusion yet, but you can see how different the thinking on this topic is from the approach you suggested.

    Best regards, Bill Bengen

Tim Konicke

Sep. 27, 2018, 2:38 p.m.

So, if a 72 year old that has a pension and Social Security that far exceeds their needs and there is a high probability that much to the portfolio will be passed on to heirs in 15-20-25 years, shouldn’t the portfolio hold more equities than 28%.

Sep. 27, 2018, 12:24 p.m.

I totally fail to understand the push for bonds. 

My elderly parents are almost ALL IN on stocks, and through generations, that wealth has been preserved and enlarged.  During recessions, the dividend stocks dropped less than the general average, AND they still paid the dividend.

What I’ve learned is that a stock is an asset that produces returns.  Like real estate, the price can go up and down, but it still produces a return. 
Have enough assets and you can have a nice annual income that can be reinvested during buying opportunities or spent however wanted.
So why the heck should people take on bonds and ‘decumulate’ the very assets that pay them well through thick and thin??  Why should I rotate out of stocks and into bonds when I’m still getting my dividend income AND able to grow my wealth by buying more assets when they’re cheap??
In retirement, I’ve observed that initially there is travel and leisure and spending (obviously budgeted…).  But eventually that wears outs and there is stagnation and downsizing. During that last phase, dividend income can be far more than what’s needed and a perfect time to buy more assets (at good value of course!)

Robert Yeakle

Sep. 27, 2018, 11:26 a.m.

So what are some funds or Etf that fit the bond area

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