Home / Money / Personal Finance /  What’s the ideal asset mix in retirement? Is it 70/30? 60/40?

My wife and I are approaching retirement, and our financial adviser is recommending that we put about 70% of our nest egg in stocks and about 30% in bonds. This approach seems risky to me. Is it? My preferred mix is about 60/40.

We hear questions frequently about asset allocation and pinpointing an optimal mix. The easy answer is: It depends. It depends, among other factors, on your ages, income from other sources (like Social Security and maybe a pension), the size of your savings and, as you indicate, your tolerance for risk. Let’s say income from sources other than your nest egg covers your basic living expenses in retirement. In that case, a 70/30 mix might be less risky than you imagine.

All that said, a better answer for retirees who are wondering whether to pump up their stockholdings might be: Leave well enough alone.

I empathize with you—and your adviser. Yes, a 70/30 mix of stocks and bonds seems aggressive, especially for investors in their 50s and older who, first, have long regarded a 60/40 split as gospel and, second, have lived through the market collapses of the early 2000s.

But many financial planners today are concerned that low interest rates, anemic bond yields and the possibility of higher inflation are a threat to your financial health. As such, retirees (or so the thinking goes) should consider putting, or keeping, a good chunk of their savings in stocks, which offer the potential for bigger returns than fixed-income investments. Of course, more stocks also mean more risk.

So, what to do? A recent study with an intriguing title, “The Unimportance of Asset Allocation in Retirement Planning," might help you and your adviser find common ground. The study, by Joe Tomlinson, an actuary and financial planner who writes about retirement finances, looks at how increasing stock allocations might affect withdrawals from savings in later life. His starting point: a hypothetical retirement-age couple trying to decide between a traditional mix of 60% stocks and 40% bonds and a 75/25 split. The couple is planning for a 30-year retirement and has $1 million in savings.

The simulated withdrawals in Mr. Tomlinson’s research are a variation on required minimum distributions, or RMDs—the amounts people must pull from their retirement savings once they reach an IRS-mandated age. Each annual withdrawal is based on the then-current savings balance and, thus, varies with investment performance; good performance means larger withdrawals, and weak performance smaller.

(You can read Mr. Tomlinson’s research in full at, which features news and research for financial advisers.

In brief, Mr. Tomlinson—after running “Monte Carlo simulations" for each asset allocation—finds that the benefits from choosing a bigger allocation of stocks aren’t as compelling as one might think. (A Monte Carlo simulation looks at thousands of hypothetical market scenarios: up markets, down markets, and everything in between.) Yes, the median annual withdrawal over 30 years is larger with the 75/25 split, but only somewhat: $48,300 vs. $45,600, a difference of less than $3,000.

What’s more, the wide range of potential outcomes—how a 60/40 nest egg and a 75/25 nest egg each perform in those thousands of market scenarios—frequently overlap. And that overlap is key, Mr. Tomlinson says. Again, a 75/25 split offers a chance for bigger returns, but both allocations contain a relatively large amount of stock. A person with a 60/40 mix, in theory, often could end up with withdrawals that are almost as large (or just as small) as a person with a 75/25 split.

All of this “raises the question of whether it’s worth spending much time agonizing over 60/40 vs. 75/25," Mr. Tomlinson says.

At this point, you might be thinking: “Well, if the outcomes are often similar, I’ll pick 75/25. At least that will give me a chance, in some years, for larger returns." That’s true. But those potential returns come with a price tag: more risk.

Stocks, by their nature, tend to be more unpredictable—more volatile—than bonds, at least in the short term. A primary reason: Returns on stocks aren’t guaranteed; returns on bonds held to maturity are more stable. As the proportion of stocks in a nest egg grows larger, there’s more “variability" in how your savings perform. The chance for bigger swings in your portfolio from year to year is greater. And bigger swings in performance can mean more ups and downs in your withdrawals.

Again, think back to the early 2000s, when stocks—twice—lost about 50% of their value. Since withdrawals vary directly with underlying investment performance, a retiree with a 60/40 portfolio would have experienced roughly a 30% decrease in withdrawals; a retiree with a 75/25 portfolio would have seen withdrawals decrease about 38%.

So…is 75/25 “better" for one’s retirement finances than 60/40? Perhaps not. In all likelihood, the only thing a person is guaranteed with 75/25 is more volatility. More volatility means more uncertainty. And more uncertainty—for investors, anyway—can mean less sleep.

This isn’t to say that asset allocation is of no consequence, Mr. Tomlinson adds. A retiree, for instance, who is debating between keeping, say, 30% of his or her holdings in stocks or 100% certainly should be aware of the advantages and drawbacks of each approach. And because stocks in general carry more risk—and retirees, in particular, are more sensitive to cash flow than workers with a steady paycheck—any retiree with a hefty allocation of stocks, he says, ideally will have “a secure base of sustainable lifetime income to support essential expenses." (Examples: Social Security, pensions, annuities.)

Please don’t misunderstand: I’m sure your adviser is trying to do what’s best for you. But what Mr. Tomlinson characterizes as “fine-tuning"—trying to pick the single, “best" allocation for stocks north of 50%—could be an exercise in futility. He notes: “If 60/40 vs. 75/25 doesn’t make much difference, the allocation bouncing around or deliberately shifting within this range doesn’t matter much either."

So…share Mr. Tomlinson’s research with your adviser. I hope it helps the two of you settle on an allocation that benefits your nest egg—and allows both of you to sleep well.

Mr. Ruffenach is a former reporter and editor for The Wall Street Journal. Ask Encore looks at financial issues for those thinking about, planning and living their retirement.

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