Your retirement portfolio allocation should evolve as you age. When you are young, you can afford to take more risk for potentially higher returns. As you approach retirement, preserving your wealth becomes increasingly important. This guide provides age-appropriate allocation strategies to help you build and protect your retirement savings.
Why Age Matters in Asset Allocation
Your age affects your investment timeline, risk capacity, and financial goals. Understanding these factors helps you create an appropriate portfolio.
Time Horizon
Younger investors have decades for their portfolios to recover from market downturns. This time advantage allows for more aggressive allocations that can generate higher long-term returns.
Risk Capacity
If you are still working, you have future income to offset investment losses. Retirees who depend on their portfolio for income cannot afford large losses.
Financial Goals
Early in your career, the goal is growth. Near retirement, the goal shifts to income and preservation. Your allocation should reflect these changing priorities.
The Classic Age-Based Rules
Several rules of thumb provide starting points for age-based allocation.
The 100 Minus Age Rule
Subtract your age from 100 to get your stock percentage. The remainder goes to bonds.
- Age 30: 70% stocks, 30% bonds
- Age 50: 50% stocks, 50% bonds
- Age 70: 30% stocks, 70% bonds
The 110 or 120 Minus Age Rule
With longer life expectancies, many advisors recommend more aggressive allocations. Subtract your age from 110 or 120 instead.
- Age 30: 80-90% stocks, 10-20% bonds
- Age 50: 60-70% stocks, 30-40% bonds
- Age 70: 40-50% stocks, 50-60% bonds
Important: These are starting points, not strict rules. Your actual allocation should consider your risk tolerance, other income sources, and personal financial situation.
Allocation by Age Group
Let us examine appropriate allocations for each major life stage.
In Your 20s: Maximum Growth
With 40+ years until retirement, you can afford to be aggressive.
Recommended Allocation
- US Stocks: 50-60%
- International Stocks: 25-30%
- Bonds: 10-15%
- REITs: 5-10%
Key Focus
- Maximize contributions
- Capture growth potential
- Start good habits
- Ignore short-term volatility
In Your 30s: Continued Growth
Still decades from retirement, but possibly balancing other goals like home buying.
- US Stocks: 45-55%
- International Stocks: 20-25%
- Bonds: 15-20%
- REITs: 5-10%
In your 30s, continue focusing on growth while beginning to build a foundation of stability. If you have high income, maximize tax-advantaged account contributions.
In Your 40s: Balanced Growth
Retirement is getting closer. Time to gradually reduce risk while maintaining growth potential.
- US Stocks: 40-50%
- International Stocks: 15-20%
- Bonds: 25-30%
- REITs: 5-10%
This is often your peak earning decade. Take advantage of catch-up contributions if you are behind on retirement savings.
In Your 50s: Transitioning to Preservation
Retirement is within sight. Begin shifting toward capital preservation.
- US Stocks: 35-45%
- International Stocks: 10-15%
- Bonds: 35-40%
- Cash/Stable Value: 5-10%
Max out catch-up contributions. Consider your Social Security strategy and estimate your retirement income needs.
In Your 60s: Preparing for Retirement
In the years just before and after retirement, focus on generating reliable income.
- US Stocks: 30-40%
- International Stocks: 5-10%
- Bonds: 40-50%
- Cash/Stable Value: 10-15%
Build a cash buffer of 1-2 years of expenses. Sequence of returns risk is highest in early retirement.
Age 70 and Beyond: Income and Preservation
Focus on generating income and preserving capital for your remaining years.
- US Stocks: 25-35%
- International Stocks: 5-10%
- Bonds: 45-55%
- Cash/Stable Value: 10-15%
Keep some stock exposure to maintain purchasing power against inflation. Coordinate withdrawals with required minimum distributions.
Building a Diversified Portfolio
Within each asset class, diversification reduces risk.
Stock Diversification
- US large cap: Core holdings for stability
- US small/mid cap: Higher growth potential
- International developed: Diversification from US markets
- Emerging markets: Higher risk, higher potential returns
Bond Diversification
- US Treasury: Safety and stability
- Corporate bonds: Higher yields with more risk
- Municipal bonds: Tax-free income for high earners
- TIPS: Inflation protection
- International bonds: Additional diversification
Rebalancing Your Portfolio
Over time, market movements will shift your allocation away from your target. Regular rebalancing keeps you on track.
When to Rebalance
- Calendar-based: Review and rebalance annually or semi-annually
- Threshold-based: Rebalance when any asset class drifts 5% or more from target
- Combined approach: Check quarterly, rebalance if thresholds are exceeded
How to Rebalance
- Sell and buy: Sell overweight assets and buy underweight assets
- New contributions: Direct new money to underweight asset classes
- Withdrawals: Take withdrawals from overweight assets
Tax tip: When possible, rebalance within tax-advantaged accounts to avoid triggering capital gains taxes.
Factors Beyond Age
While age is important, other factors should influence your allocation.
Risk Tolerance
If you cannot sleep during market volatility, you may need a more conservative allocation regardless of age.
Other Income Sources
If you have a pension or expect significant Social Security income, you may be able to take more investment risk.
Retirement Timeline
Planning to work longer? You can afford a more aggressive allocation. Planning early retirement? Shift conservative sooner.
Health and Life Expectancy
Those in good health may need their portfolio to last longer, requiring more growth-oriented investments.
Common Allocation Mistakes
Avoid these errors when building your retirement portfolio.
Being Too Conservative Too Early
Young investors who avoid stocks miss decades of potential growth. A market crash when you are 30 is an opportunity, not a disaster.
Being Too Aggressive Near Retirement
A 50% market decline just before or after retirement can devastate your plans. Reduce risk appropriately.
Ignoring Inflation
An all-bond portfolio may feel safe but loses purchasing power over time. Maintain some stock exposure even in retirement.
Failing to Rebalance
After a bull market, you may be far more exposed to stocks than intended. Regular rebalancing maintains your risk level.
Track Your Portfolio Allocation
Pro Trader Dashboard helps you monitor your asset allocation and track rebalancing needs across all your accounts.
Summary
Your retirement portfolio allocation should evolve as you age. Start aggressive when young, gradually shift to preservation as retirement approaches, and maintain some growth investments throughout retirement to combat inflation. Use age-based rules as starting points, but customize based on your personal circumstances. Regular rebalancing keeps your portfolio aligned with your goals and risk tolerance.
Learn more about retirement investing with our guides on target date funds and catch-up contributions for those 50 and older.