It's important to keep your money invested not just in the years leading up to retirement, but also in retirement. If you enter retirement with a $500,000 IRA or 401(k), you'll want that balance to keep growing even as you're taking withdrawals. That will give you more financial freedom as a retiree.
Now, you may have heard that stocks can be a risky investment for older people because their value can fluctuate on a whim, whereas more conservative assets like bonds tend to be more stable. The reason it's okay for younger people to have most of their assets in stocks is that they have time to ride out market downturns. But if you're in retirement and are already tapping your portfolio to cover living costs, you may not have that same flexibility.
As such, it's a good idea to limit your stock holdings once you get older. But there's definitely no such thing as being too old to own stocks.
It's all about striking the right balance
The reason you want to keep some stocks in your portfolio when you're older, whether it's your IRA or a regular brokerage account, is that they commonly generate higher returns than safer assets, like bonds. And you want those higher returns to keep helping you grow wealth.
That's why dumping your stocks completely in retirement is not the best move. But you also don't want to go too heavy on stocks, either, because you want to limit your risk.
So how do you strike the right balance? One rule you can use is to take the number 110 and subtract your age. That could represent the percentage of your portfolio that you should keep in stocks. So if you're 75 years old, you'd subtract 75 from 110 to arrive at 35% of your holdings in stocks.
You can also follow this advice from Schwab:
- At age 60 to 69, consider a moderate portfolio that's 60% invested in stocks.
- At age 70 to 79, consider a moderately conservative portfolio with 40% in stocks.
- At age 80 and above, be conservative and limit your stock holdings to 20%.
Or, you could simply develop your own strategy based on your personal risk tolerance, income needs, and other factors. If the idea of having more than 15% of your portfolio in stocks, for example, keeps you awake at night, then limit yourself to that percentage. Your comfort level is something that should absolutely be accounted for.
You're not too old to grow your money
Keeping stocks in your portfolio is a great way to generate ongoing retirement income, which you'll need to live comfortably and meet your goals. If you're not comfortable holding a lot of stocks in retirement, go light on them. But think twice before you decide to dump your stocks completely.
If you stick with investments that are too safe, you might have to limit your spending or make other sacrifices. On the flipside, taking on a modest amount of risk might give you a lot more financial flexibility.
