Asset Allocation in Retirement

Your asset allocation strategy in retirement will probably be different than the one you used when saving for retirement. During your accumulation years, your asset allocation decisions may have been focused primarily on long-term growth. But as you transition into retirement, your priorities for and demands on your portfolio are likely to be different.

For example, when you were saving, as long as your overall portfolio was earning an acceptable average annual return, you may have been happy. However, now that you’re planning to rely on your savings to produce a regular income, the consistency of year-to-year returns and your portfolio’s volatility may assume much greater importance.


Balancing the need for both immediate income and long-term returns can be a challenge. Invest too conservatively, and your portfolio may not be able to grow enough to maintain your standard of living. Invest too aggressively, and you could find yourself having to withdraw money or sell securities at an inopportune time, jeopardizing future income and undercutting your long-term retirement income plan. Without proper planning, a market loss that occurs in the early years of your retirement could be devastating to your overall plan. Asset allocation and diversification do not guarantee a profit or ensure against a loss, but they can help you manage the level and types of risk you take with your investments based on your specific needs.

An effective asset allocation plan:

  • Provides ongoing income needed to pay expenses

  • Minimizes volatility to help provide both reliable current income and the ability to provide income in the future

  • Maximizes the likelihood that your portfolio will last as long as you need it to

  • Keeps pace with inflation in order to maintain purchasing power over time


The classic image of a retirement income portfolio is one that’s invested almost entirely in bonds, with the bond interest providing required annual income. However, retirees who put all their investments into bonds often find that doing so doesn’t adequately account for the impact of inflation over time. Consider this: If you’re earning 4% on your portfolio, but inflation is running between 3% and 4% (its historical average), your real return is only 1% at best — and that’s before accounting for any taxes.

That means that you may not want to turn your back on growth-oriented investments. Though past performance is no guarantee of future results, stocks historically have had better long-term returns than bonds or cash. Keeping a portion of your portfolio invested for growth (generally the role of stocks in a portfolio) gives you the potential for higher returns that can help you at least keep pace with inflation. The tradeoff: Equities also generally involve more volatility and risk of loss than income-oriented investments. But effective diversification among various types of investments can help you balance lower-yielding, relatively safe choices that can provide predictable income or preserve capital with those that may be volatile but that offer potential for higher returns.


Your financial situation is unique, which means you need an asset allocation strategy that’s tailored to you. That strategy may be a one-time allocation that gets revisited and rebalanced periodically, or it could be an asset allocation that potentially shifts over time to correspond with a different stage of your retirement. The important thing is that the strategy you adopt is one that you’re comfortable with and understand.

Chris Kelly | CPA, CFP®, M. Accy | Financial Advisor and Portfolio Manager | ckelly@bwfa.com