How Much Should Retirees Allocate to Equities?

Experts disagree about exactly how conservative your portfolio should be in retirement

By + More

It’s common investing wisdom that you should reduce your exposure to equities as you age and gradually move your nest egg into less risky investments. But experts disagree about exactly how conservative your portfolio should be in retirement. Retirees need growth because they could live 20 or even 30 years in retirement. But it can also be catastrophic for retirees to lose principal they have no way of replacing. Over the past two weeks I have spoken with a number of investing experts about how much retirees should allocate to equities. Excerpts:

John Sweeny, senior vice president of planning and advisor services for Fidelity Investments: 50 percent

If you are about 65 years old…at retirement we are suggesting about a 50 percent allocation to equities because of the high probably that they could live to age 82. This does not represent a change in the past year.

James Shelton, chief investment officer of Kanaly Trust in Houston: 30 percent or less

We are encouraging all our clients to have no more than 30 percent in equities. Once we start to feel better about market stability, then people who have longer time horizons can have more equity exposure. Don’t make snap decisions based on emotions and certainly don’t try to make up losses by increasing the risk in the portfolio. We’re in the neighborhood of 10 to 20 percent cash.

Stephanie Giroux, chief investment strategist at TD Ameritrade: 100 minus your age

It’s always appropriate that as you get older you carry more fixed income and cash in the portfolio to meet your liquidly and capital preservation needs. The general rule of thumb is 100 minus your age. A 67-year-old couple would still have 33 percent in equities. That is still generally appropriate because people are living longer in retirement so there is still a piece of the portfolio that needs to increase in value over time to get people through their retirement.

Dan Greenshields, president and chief investment officer of ShareBuilder: 100 minus your age

It’s not a bad rule of thumb. If I’m 40, I ought to have 60 percent in equities, and a 50-50 split for someone who is 50. You want to make sure you have assets that will grow when the market goes up again. You need to be very careful about being too conservative.

Rande Spiegelman, senior vice president of the Schwab Center for Financial Research: 40 to 60 percent

No matter how aggressive you are, retirees who are just retiring and going to start relying on their portfolio for income should have no more than 60 percent of their portfolio in stocks. If you are risk-averse, have at least 20 percent in stocks so you can keep up with inflation. The sweet spot between reliable and sustainable income and the potential for upside growth is 40 to 60 percent in stocks. I think the most important thing is focusing on an appropriate mix of stocks, bonds, and cash that is based on your risk tolerance. If you don’t already know yourself, the market can be an expensive place to find out. Sit down and understand what you are willing to live with in terms of how aggressive you can let yourself become. Don’t let your emotions lead you to do something you otherwise wouldn’t do.

Tell us, how much will you allocate to equities in retirement?