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When it comes to saving for retirement, younger investors can afford to take on more risk because they still have plenty of earning years ahead of them and time to ride out stock market declines. However, as investors age, with more of their earnings years behind them and less time to recover from any losses, they are advised to gradually become more conservative. At some point—usually around retirement—the focus shifts from trying to save enough for retirement to making sure that nest egg lasts for the next 20, 30 or even 40 years. With that in mind, should you have risky investments once you retire?

A person holding a clipboard looking at risky investments.

Allocation by Age

It used to be that you could subtract your age from 100 to figure out what percentage of your portfolio should be in stocks instead of more conservative investments like bonds. Accordingly, at age 40, for example, 60 percent of your portfolio (100 – 40) would be in stocks; at age 50, 50 percent would be in stocks. The problem with this widely accepted rule is that it doesn’t account for today’s longer lifespans—which means you might be moving away from risk too early and not growing your nest egg as much as you should.

Many financial planners now recommend that you start with the number 110 or 120 (instead of 100) before subtracting your age to determine the ideal asset allocation. With this new guideline, you should have 70 to 80 percent stocks in your portfolio at age 40. When you’re 50, you would still have 60 to 70 percent stocks, which is significantly higher than the “old school” recommendation of 50 percent. At 63—the average retirement age in the U.S., according to data from the U.S. Census Bureau—you’d be looking at a portfolio with 47 to 57 percent stocks.

How Much Risk Is Right for You?

These guidelines serve as a good starting point, but the amount of risk that’s right for you during retirement depends on a number of factors, including:

Your age

As noted above, in most cases, your risk exposure should taper as you get older because you’ll have less time to recover from market dips. The younger you are when you decide to retire, the more risk you can reasonably weather.

Your risk tolerance

Could you handle—financially and emotionally—a repeat of the Great Recession? If the thought of a stock market crash keeps you up at night, you might be better off with less risky investments during retirement.

Your retirement income

If you have other sources of reliable retirement income (from Social Security, annuities, pensions and the like) that can cover your living expenses, you can probably stand a higher level of risk. The flipside to that, of course, is that if that income is enough to cover your living expenses, you don’t need the added risk in your portfolio. It comes down (again) to your risk tolerance.

Your financial goals

Even if you have the money and income you’ll need to comfortably fund your retirement, you may still want to continue building wealth—perhaps to leave a large inheritance to your children or to support a cause that’s important to you. As long as you can tolerate a little volatility in your retirement income, there’s no reason to stop investing in higher risk investments like stocks just because you reach a certain age.

Your investing attention span

Many people become less able and/or less interested in managing their investments during retirement, but that doesn’t mean you need to move all your money into cash and CDs. Instead, you may opt to put more of your money into diversified investments like index ETFs or target-date funds that don’t require constant monitoring.

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