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What is a safe asset allocation for 65 year old retiree for growth and capital preservationl. Is it approximately 60% stock, 40% bonds? Or it is more aggressive? The primary focus is capital preservation, but some growth is required to keep up with inflation. We have tried to maintain a 50% stock and 50% bond portfolio in the past. But with inflation, we are concerned about an economic downturn.

zeffen
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  • Growth and capital preservation are contradicting goals, since growth is risky, yet preservation requires safety. You can only balance those two competing goals. (Having said that, Series I savings bonds pay the current annual inflation rate. Unfortunately, you can only buy $10k per SSN per year.) – RonJohn Feb 14 '22 at 18:14
  • 60% stock, 40% bonds sounds way too aggressive for a 65 year old. – Chris Degnen Feb 14 '22 at 18:15
  • And yet, with bonds/CDs, so low, the risk of drawing down principal is high. My wife is 65, and I’m down to a 75/25 mix, the 25 is about the 5 years spending until we draw on her SS. – JTP - Apologise to Monica Feb 14 '22 at 19:29
  • @ChrisDegnen - relative risk depends on many factors, including how much money you have and how long you might live. By 65 (not long for me) I will have much less in bonds, but enough cash assets to cover several years of costs. – Jon Custer Feb 15 '22 at 14:10

2 Answers2

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There's no "magic" allocation based purely on age. There are many factors to determining what a "safe" allocation is:

  • How much do you have saved so far?
  • How much do you plan to spend in retirement?
  • When do you expect to retire?
  • What other goals do you have for retirement? Traveling? Grandkids college?
  • How much risk can you tolerate (both emotionally and financially)

The more you have at retirement (relative to how much you plan to spend), the more risky you can be, since you can afford some risk in exchange for more growth. If you can only meet your expenses with a very safe (all fixed income) portfolio, then you don't have much room to take more risk.

There are very simplistic models like the "rule of 100" (recently adjusted to the "rule of 110"), but they are incredibly simplistic and don't take any individual circumstances (or current market conditions like low interest rates) into account.

A good financial advisor can look at your personal situation and come up with a plan that fits your circumstances and risk tolerance.

D Stanley
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Traditionally, advisers have used the “100 minus age” rule, which is the percentage of your assets that you should allocate to equities. The older you get, the more you shift toward fixed income, thereby reducing the volatility and market exposure.

In recent years, many advisers have suggested that due to increased life expectancy as well as the past decade of low rates, this rule of thumb is outdated. In order to avoid running out of assets in one's lifetime, some now suggest 110 or even 120 minus your age. This is just a starting point for calculations. Other factors need to be considered:

Estate size, current/future expenses, sources of income, gender (women live longer), risk tolerance, etc.

There are retirement calculators out there. Each underlying algorithm reflects an opinion and it's as much of an art as a science. There's no one size fits all answer. It's a foundational blueprint from which to start from.

There are many financial advisers out there who will provide basic free evaluations. I'd suggest that you avail yourself of these and use their advice to help advance your learning curve. You might find something that fits into your financial plan.

Bob Baerker
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