How should you split your retirement investments between stock and bonds? How do you make this decision? Your chosen split is called your Asset Allocation, and you’ll often see it written as two numbers; for example, 60% stock and 40% bonds is written as “60/40”. Let’s dig into it.


To decide on an asset allocation, it’s worth first thinking about your goals from your retirement portfolio. Saving for retirement isn’t the same thing from beginning to end - your goals really do change over time.

When you have a long time until retirement, your goal is to grow your retirement investments as fast as safely possible. You have a large target balance to save up, so the faster your investments grow, the faster you’ll get there. Ups and downs don’t matter, as long as you don’t lose everything. Your new savings can make up for price drops (and take advantage of the discount).

When you’re getting closer to retirement (say, 10 years or less), your goal is to reach your retirement target with some predictability. You have a lot saved up. You still need your portfolio to grow, but stability is starting to matter, too. You want to know when you can quit. It’s ok if your retirement date shifts a little, but you don’t want a crash to set you back five years. You are not ready to work 10 years more than planned if things go wrong. Your new savings each year can’t make up for big portfolio swings anymore.

When you’re retired, your goal is to draw retirement income with reasonable stability and safety. You want a relatively stable retirement income - cutting spending by 10% might be ok, but 40% likely isn’t. You need that income to keep up with inflation, too. You want a very low risk of running completely out of money. You have no new savings, so you need what you have to last. Of course, you still need good performing investments so that you don’t have to save an enormous amount to retire.

To sum up, your goals always include growth and stability to some extent, but as you get closer to retirement, your need for growth decreases and your need for stability increases.

Why Have Stock?

Stock provides great long term returns (10% per year on average), but with a lot of ups and downs. If you could put your money in a bank savings account that returned 10% per year like clockwork, that would be obviously better, right?

Unfortunately, banks don’t have to offer 10% interest to get people to deposit money, so they don’t. Ultimately, every investor is looking for the best return for a given level of safety, so investors will flock to safer investments and “bid up” the prices until the returns are in balance with other options. This means that it’s very hard to find a “free lunch” - if you want higher returns, you have to accept more risk.

Stock has a very high long term return. The great return helps in two ways: you need a smaller target balance to get a given retirement income, and your money grows toward that target balance more quickly.

Stock also provides relatively good inflation protection. While stock prices aren’t guaranteed to rise with inflation, ultimately the businesses you own will raise prices (and wages) with inflation, so they do tend to keep up with it.

Why Have Bonds?

If stock has a much better long term return, why hold bonds at all? The short answer is stability. While stock prices can drop by 50% or more in a severe crash, bond prices are unlikely to move more than 5% in equivalently bad times.

If you retire and the stock market promptly drops by half, it’s a high risk situation. In an all-stock portfolio, suddenly the 4% withdrawals you were counting on are 8% of the portfolio. The chances of your portfolio growing enough in the recovery to make up for your larger during-crash withdrawals becomes much lower.

Bonds provide a stable source of income during stock market crashes. If 40% of your portfolio is in bonds and you withdraw 4% each year, you’ve got ten years of spending while you wait for that recovery.

If you are not yet retired, having 40% in bonds means that our example crash reduces your portfolio by 30% instead of 50%, reducing the change to your retirement date. Not only that, but when you adjust your portfolio back to your 60/40 target, you’ll be selling normal-price bonds to buy heavily discounted stock, boosting your growth during the recovery. (This effect is called the “rebalancing bonus”.)

Is There A “Best of Both Worlds”?

If it’s only safe to spend about 4% of your portfolio each year, the ultimate investment would grow with inflation each year like clockwork and provide a dividend to spend. This investment exists, and it’s called TIPS (Treasury Inflation Protected Securities). Unfortunately, since investors flock to safe investments like this, the current (2021) return for them is 0.125%, not 4%, and even then they currently sell for more than the “face value”. You’d need an enormous portfolio to retire today with ultra-safe TIPS.

Asset Allocation Ranges

Ok, so stock provides a great long term return and bonds provide stability. You want both growth and stability, with more growth early on and more stability later.

Here are some reasonable target ranges:

Saving PhaseSuggested Stock/Bond Allocation
> 10 years to retirement70/30 to 90/10
< 10 years to retirement50/50 to 80/20
in retirement30/70 to 70/30

When you have a long time until retirement, you’re holding around 80% in stock. Thanks to the “rebalancing bonus”, a small bond allocation reduces returns only minimally. It’s helpful to have bonds to get used to how they behave and the process of rebalancing.

Getting close to retirement, you shift to closer to 60% stock, reducing returns more distinctly but providing much more predictability in your retirement date.

In retirement, you reduce your stock percentage further. Note that I’ve listed a large recommended range. This is because safe retirement incomes are designed around the worst-case situations. Holding more bonds both reduces your safe income (lower returns) and raises it (smaller worst-case drops). As a result, a relatively similar retirement income is safe for a surprisingly wide range of allocations.

Choosing Your Asset Allocation

I’ve explained stocks and bonds and given rough ranges, but how do you pick your specific allocation? The Bogleheads community has a great maxim for this: “Your asset allocation should depend your need, ability, and willingness to take risk”. What does this mean?

Your need to take risk depends on how much growth you need to make your plan work. If you are retired and have just enough money, you need a high enough stock allocation to provide the income you plan to draw. In contrast, if you have a lot more than your target, you could afford a lower stock allocation. Before retirement, your need to take risk depends on how likely your savings are to grow to your portfolio goal by your desired retirement date. If you want to retire “as soon as possible”, you probably want a high stock allocation.

Your ability to take risk is all about psychology - when you see your portfolio drop in a crash, will you be able to stick with your plan? Stock market crashes are a bad time to make changes. However, there’s no better time to really assess your ability to take risk. Use them to figure out what you can stick with comfortably make changes when things recover.

The absolute impact of crashes also grows with your portfolio. For us, the 2008 crash temporarily wiped away about four years worth of spending at the lowest point. Our balance dropped even with our new savings for the first time. It was rough. During the 2020 pandemic, in contrast, we lost four years of spending a one month, and we were much less willing to work extra years at that point.

Your willingness to take risk is about your preferences. How much do you care about growth versus stability in your current situation? If you have more money than you need but want to leave the largest possible inheritance, you still have a high willingness to take risk. If you are dead set on not seeing your balance drop more than 15%, you have a low willingness to take risk.

Think about these factors and how they apply in your situation to decide where within the suggested ranges you might want to be.

Our Allocation and Rationale

What decision did we come to ourselves? In 2021, we’re retired, and our goal is to keep our asset allocation around 65/35.

We worked longer than we planned and have more than we need saved up. At the same time, we need our portfolio to last through an extra-long retirement and keep up with long-term inflation. Between these two factors, we have a moderate need to take risk.

We’ve sat through several crashes (including last year) and we didn’t panic and make changes, so I believe we have a moderately high ability to take risk. At the same time, I appreciate knowing we have bonds to sell during a long crash, so I wouldn’t want to have only 20% bonds at this point, for example.

We want a fair amount of stability. We know how we would cut our spending by 20% if we needed to, but really wouldn’t want to cut more than that. Leaving a huge inheritance isn’t a goal; we want to be able to help our girls get started with saving and home-buying, potentially, but not too much more than that. We have a lower willingness to take risk.

With a moderate need, high ability, and lower willingness to take risk, you might expect us to choose an allocation near the middle of the range, like 50/50. I’m as concerned about long-term inflation long-term as I am about short-tern crashes, however, so 65/35 feels like the safest balance between those conflicting concerns.


Asset Allocation is an important choice but not an easy one to make. Fortunately, a high stock allocation isn’t too hard to stick to early on (you don’t lose years of savings in a crash) and a surprisingly wide range of allocations works in retirement (bond returns lower your safe income, as bond stability raises it). Your asset allocation is also not a choice you’re locked into forever - you can and should revisit it periodically. I hope the guidance above helps you choose your allocation, but if you’re still unsure, this is a good topic to talk to a fee-only financial planner about.