Stocks in Retirement: You Might Need More Than You Think

We’ve all heard the advice: As you near retirement, pare back on equities and add cash and fixed income to your portfolio. But does it follow that you should be out of stocks altogether by the time you retire?

It may make sense for today’s retirees to keep as much as 60% to 80% of their investment assets in equities, especially in their first decade of retirement.

The rationale behind such a stock-heavy portfolio has to do with life expectancy. Those who stop working at age 65, for example, may need to stretch their savings for 20 years or more1, and stocks can help offset the risk of outliving your savings.

Consider two simulations run by analysts at the Schwab Center for Financial Research. In the first, they took a hypothetical portfolio of $1 million made up of 60% equities and 40% cash and fixed income and withdrew 5.9% annually for 20 years. In three-quarters of the 1,000 trials, the portfolio’s balance after 20 years was greater than $0 – meaning the portfolio had a 75% chance of lasting 20 years.2

In the second simulation, the $1 million hypothetical portfolio was made up of 20% equities and 80% cash and fixed income. In this scenario, analysts could withdraw only 5.4% if they were to maintain a 75% chance of the portfolio lasting 20 years.

In other words, the math favors the bold, but with greater risk and a wider range of possible outcomes.

While it’s true that, on average, you can do better with a more-aggressive portfolio, you could also run out of funds sooner due to increased volatility.

That’s one reason it’s wise to keep a reserve of one to two years’ worth of living expenses liquid. Lessening the likelihood you’ll need to liquidate equities during a downturn.


1 – “When to Start Receiving Retirement Benefits,”

2 – As of 03/12/2018. Sustainable withdrawal rates are calculated using Monte Carlo analysis. The asset allocation is assumed to be constant for the designated time period. Withdrawals increase by a constant 2.20% rate of inflation. Returns and withdrawals do not consider the effect of taxes. Portfolio-level nominal returns and standard deviations are 6.03% and 8.85%, respectively, for the portfolio with 60% equities and 40% cash/fixed income and 3.69% and 3.24%, respectively, for the portfolio with 20% equities and 80% cash/fixed income. For illustrative purposes only. Results may vary with each use and over time.

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About the Author

Brian Robinson, CFP®, APMA®, AWMA®, AAMS®, CMFC®

Brian Robinson’s interest in finance and investments started in college when he took his first economics class. He was fascinated by the way economics affected the world – from buying commodities to international monetary policy to behavioral economics, it all made sense. From then on, he knew he wanted to work in the financial industry and has been doing so for more than 20 years.