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?

Not necessarily. “In fact, it may make sense for today’s retirees to keep as much as 60% of their investment assets in equities, especially in their first decade of retirement,” says Rob Williams, managing director of income planning at the Schwab Center for Financial Research.

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 more,1 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—albeit 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,” Rob observes.

That’s one reason it can be wise to maintain a near-term reserve of two to four years’ worth of living expenses—thereby lessening the likelihood you’ll need to liquidate equities during a downturn.


1“When to Start Receiving Retirement Benefits,”

2As 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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The projections or other information generated by Monte Carlo analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.