What Equity Allocation Do You Need in Retirement?

Financial experts often recommend that investors keep some amount of stocks in their nest eggs, even in retirement, because a measure of growth is important in order for a portfolio to keep pace with inflation. But I’m often asked if the risk is worth it. Let’s explore that topic.

Retirees who are getting by just fine on income from Social Security and savings may think it’s crazy to take on the risk of fluctuating stock prices for a little more growth. That’s understandable. The global financial crisis in 2008 showed us how easily the market can destroy the value of a nest egg. So what’s an investor nearing retirement to do?

On the one hand, if you are absolutely certain that you can live comfortably for the rest of your life on Social Security and savings and you don’t want to leave money to children or other beneficiaries, you have a good case for avoiding stocks. There is just no reason to take on the risk.

But the phrase “absolutely certain” is key. Are any of us “absolutely certain” at any time? What about unforeseen circumstances? Your living expenses could go up more than expected because inflation is unpredictable. Perhaps you take on some expensive hobbies (sailing, golf). Maybe you experience a costly medical crisis. You could even be the unfortunate subject of a lawsuit. Any of these predicaments could move your plan off course and do so drastically.

If those possibilities worry you, you may want a little extra cash on hand to absorb unexpected expenses. And if so, the growth potential of stocks may be appealing to you. A large allocation isn’t necessary: you just need enough to give your portfolio a little more growth potential.

If you would like to discuss your asset allocation, please reach out to me. I can help you understand your options, given your individual circumstances.