One common belief in retirement planning is that once you reach age 65, you should shift most of your portfolio out of stocks and into bonds. This rule of thumb comes from an old guideline: your age should roughly equal your bond allocation.
The thinking was simple—reduce equity exposure as you age, increase fixed income, and lower risk as you approach retirement.
But here’s the problem: that advice was built in a very different environment.
Why the Old Rule Falls Short
Decades ago, interest rates were much higher, and retirement was shorter. Today, retirement often lasts 30 years or more. That changes the math.
Equities are still critical for growth and inflation protection over time. If you cut back too aggressively, you risk your portfolio not keeping pace with your spending needs.
Customization Over Rules of Thumb
Rather than relying on a one-size-fits-all formula, think about your actual situation:
- Other income sources: If you have rental income, a pension, or part-time work, that fixed income can substitute for some of the bonds you might otherwise hold.
- Portfolio size vs. needs: If you’ve accumulated more than you’ll ever spend, a portion of your wealth can be invested more aggressively for long-term growth or legacy goals.
- Next-generation planning: If some of your assets are essentially earmarked for heirs, it may make sense to invest those dollars with a longer time horizon in mind.
Rethinking the Glide Path
Some retirees follow a reverse glide path. They reduce equity exposure as they near retirement, then slowly build equity back up over time. Why? Because once the initial retirement years are behind them, the risk of running out of money diminishes, and the focus shifts to long-term legacy growth.
This doesn’t mean a 100% equity portfolio in retirement is appropriate. Bonds still play a role as a buffer, particularly against sequence-of-returns risk. But the right mix is about balancing cash flow, taxes, and goals—not just your birthday.
Final Word
The idea that “65 means bonds” is outdated. Instead of defaulting to a rigid rule, focus on what your cash flow looks like, how much risk you actually need to take, and what you want your wealth to accomplish—both for you and for the next generation.
This post is based on a recent episode of the Scholar Wealth Podcast. Listen in for more insights.