Asset allocation for retirees: Smart strategies for a secure retirement

Asset allocation for retirees is the strategy of distributing your investments among a variety of asset classes — like stocks, bonds, and cash — with the aim to preserve capital, generate income, and minimize risk during retirement. 

Once you are in retirement, your priorities may shift from growing wealth to preserving it and making it last as long as possible. Since you are likely no longer earning a full-time income, your investment portfolio may be your main financial source for covering living expenses. 

Aside from the cost of living, additional costs such as medical costs, inflation, and other unexpected expenses might take a toll on your retirement funds if you are not well-prepared. 

Well-managed asset allocation can help you maintain a diversified and resilient portfolio to help you withstand market volatility while providing a stable income.

Let’s explore some of the main components of asset allocation for retirees.

The three most common asset classes include stocks, bonds, and cash or cash equivalents. 

Each class serves a unique purpose, for example:

• Stocks (equities) may offer higher growth potential, but at the cost of higher risk and volatility. 

• Bonds (fixed income) may provide more stable returns and income, but at the cost of lower growth potential. 

• Cash or cash equivalents include certificates of deposit (CDs), high-yield savings accounts, or money market accounts. These are generally low-risk, but also generally offer the lowest returns. 

By diversifying your portfolio and spreading investments across different classes, you can help mitigate risk and potentially boost your returns during your retirement. 

However, as you age and your financial circumstances change, your asset allocation during retirement may also need to be adapted. While you may have used your early career for aggressive investment opportunities, retirement may be the time to shift to a more conservative allocation. This is because you may not have enough time to recover from possible market downturns during retirement, and may instead want to focus on preservation and longevity.

While your asset allocation is meant to evolve throughout your lifetime, there is no one-size-fits-all approach to how your portfolio should look. However, there is a general trend toward a more conservative approach during retirement. 

Here are some general guidelines for retirement portfolio allocation that retirees tend to follow: 

• 40 – 60% within bonds and fixed income: Helps to provide stability and income. 

• 30 – 50% within stocks: May still be important for potential growth in your portfolio to help beat inflation over a long retirement. 

• 5 – 20% within cash or cash equivalents: Helps to cover near-term expenses and unexpected costs without needing to sell investments in a down market. 

Take note that your investment strategies may shift throughout your retirement. You may readjust your asset allocation to match your needs during the later years of your retirement. 

Shifting your portfolio allocation can help you generate income while preserving your capital, so it is important to assess your portfolio based on your personal circumstances, and be aware of potential risks. 

Remember to take your personal circumstances into consideration when making changes to your portfolio. These guidelines are meant to serve informational purposes only and are not intended to be investment advice. It is recommended to consult an investment or retirement advisor when making investment decisions. 

Assessing your individual investment risk tolerance is crucial in determining your asset allocations for retirement. Doing so can help ensure your strategy aligns with your financial goals and capabilities, alongside your personal comfort levels. Understanding your risk tolerance may help you protect your retirement goals, even if market conditions become challenging. 

If you are someone who is not comfortable investing in risky options during retirement, you may want to consider allocating more assets to bonds or cash and cash equivalents. On the other hand, if you are comfortable taking higher investment risks during retirement, then you may consider spreading your assets across stocks, bonds, or cash and cash equivalents.

It is important to be aware of potential risks in all investment options, to consider any possible losses you can face. Doing so can help you make well-informed decisions on where to invest your money and help you with asset allocation during retirement.

During your retirement, your portfolio may experience growth and losses, causing potential shifts in your asset allocation. While you may have experienced shifts in asset allocation near retirement, it is important to assess your portfolio from time to time throughout your retirement to ensure it remains balanced. 

Your priorities may also shift during your retirement, which is another reason for realigning your portfolio to mitigate the risk of losses. However, you don't want to rebalance so often that you end up paying unnecessary fees, but you also don’t want to wait too long and expose yourself to potentially unavoidable risk. 

Essentially, you want to maintain balanced asset allocation during retirement. You may want to focus on finding a middle ground between growth potential and downside protection that fits your individual needs. Ideally, this would reflect your financial goals and your ability to financially and emotionally withstand market fluctuations without sacrificing essential needs. 

Protecting your assets from inflation, recession, and falling markets is a key part of making your retirement savings last. You may want to focus on diversifying your investments across stocks, bonds, cash, or even alternative investments to help mitigate the effects of inflation, recession, or market downturns. 

You may also want to assess your retirement withdrawal strategy and focus on strategies like the bucket approach — dividing your retirement savings into “buckets” based on time horizons from short- to long-term — to manage your withdrawals. Consider sticking to and rebalancing your financial plan from time to time so you are not over- or under-spending. 

You can also look into inflation-protected assets, such as dividend-growth stocks, maintaining a cash reserve for short-term needs, or even consider guaranteed income products, such as annuities. Regularly rebalancing your portfolio, minimizing taxes, and potentially delaying Social Security may also help preserve and stretch your retirement savings through economic ups and downs.

Using high-yield savings products for your cash savings strategy may also help you mitigate inflation when interest rates are high. The Raisin marketplace offers access to various high-yield savings accounts all on one platform. Explore top interest rates and begin growing your cash reserve today.

Asset allocation for retirees may also help generate income during retirement. Many retirees utilize their investment strategy to supplement Social Security, pensions, or other retirement funds. A well-balanced portfolio can help you meet these goals while potentially offering you another source of income.

There are several ways to generate income during retirement. This may include earnings from investments, annuities, Social Security, or even earnings from a retirement account such as an IRA or 401(k).  

However, finding the right strategy to generate income in retirement depends on multiple personal factors, including your income needs and lifestyle, financial goals, and risk tolerance. Once you have determined these needs, you can create a tailored plan to help achieve your goals and ensure you have lasting funds throughout your retirement. You may also want to account for the tax implications of income generated in retirement, which is usually taxed as normal income unless you are utilizing a tax-advantaged account.

If you want to learn more about strategies for turning your retirement savings into lasting income, turn to our retirement income strategy article.

If you are looking to diversify and grow your cash assets in retirement, Raisin can help. With a single platform, you have access to a range of high-yield savings products including: money market accounts, certificates of deposit, and high-yield savings accounts. These options may help your retirement portfolio diversification by offering steady growth on your cash savings and contributing to your retirement funds. Compare competitive interest rates and start growing your savings today. 

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.