Salient to Investors:

Wade D. Pfau at The American College and Michael Kitces at Pinnacle Advisory Group said:

  • A U-shaped retirement plan – 20% to 40% in equities, with a gradual increase of 1% per year to a maximum 60% to 80% allocation to stocks by the end – is preferable to the standard downward slope of equity allocation as a client ages.
  • Greater equity exposure in the later years of retirement actually help, especially when returns in the early retirement years are poor and favorable returns are crucial to allow the portfolio to last.
  • The first 15 years of retirement are crucial. A strong market early in retirement will put retirees far ahead of their goal, enough to buffer the effects of a bear market later in retirement A poor market in the first 15 years means the portfolio will need strong returns in the second half of retirement to ensure it lasts.

John  at Morningstar said a starting point of 30% equities at retirement rising to 60% with a 4% withdrawal rate leads to only slightly better outcomes than a fixed mix of 45% stocks and 55% bonds. Rekenthaler said a 25% average weighting in stocks in retirement, beginning with 10% in stocks and ending with 40% would not fare as well as a portfolio that starts retirement with 40% and declines to 10% – a 25% equity position is the current status of most retiree portfolios. Kitces said this strategy does not work in scenarios that have 50/50 chance of catastrophe anyway.

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