Asset Allocation by Age: How Your Split Should Change Over a Lifetime

Setting a stock-and-bond split is one of the most important planning jobs in a lifetime of investing, not only for people approaching retirement but for anyone who has been told to subtract their age from 100 and call that the answer. The work involves asking what each pot of money is for, giving near-term spending a cash-and-bond buffer, leaving long-horizon money in equities, and then rebalancing once a year so a bull run does not quietly raise your risk.

On the other hand, a split that matches real deadlines can keep a plan intact when a bad year arrives. A 65-year-old retiring today still has twenty or thirty years left to spend that money. The old rule does not know that, because it was never really about age. It was a guess at how long until you need it. Get the guess closer to the actual deadline, and the portfolio starts answering the right question.

Here are some things you can do to set a split that changes with your life, rather than only with your birthday.

Ask what the money is for, not how old you are

Stocks swing harder than bonds, and over a long enough stretch that swing pays off. Over a short one, it is just risk. So the real question is not your birthday. It is each pot of money's own deadline.

You can hold all four at once without contradiction, because they are answering different questions. A single blended number hides that.

Why the five years around retirement matter most

While you are still contributing, a crash is almost good news: your paycheck buys more shares cheap. Once you are withdrawing, the same crash forces you to sell more shares to raise the same cash, permanently shrinking what is left. Two retirees with identical average returns can end up in very different places depending only on whether the bad years hit first or last.

The arithmetic is worth seeing directly. Drawing $40,000 a year, a 30% fall means selling roughly 43% more shares to raise that same $40,000. Those shares are gone, so they are not there to recover when the market does. Three down years early in retirement can leave a portfolio unable to recover even if the next twenty are excellent. The same three years at 85 barely register.

Four rules that hold up better than a birthday

1. Hold five to seven years of expected spending in cash and bonds. That range is not chosen for comfort: it roughly matches the window within which most declines have historically recovered, so the buffer outlasts the thing it protects against. Work out your annual spending not covered by pensions or other guaranteed income, multiply by six, and hold that outside equities. Someone decades from retirement barely touches this. Someone drawing down now gets the thing that lets them leave the equities alone through a bad stretch.

2. Give every pot of money its own deadline, not one blended number. A house deposit due in two years and a retirement forty years out are different problems, and averaging them produces a portfolio wrong for both. Write down each goal, the year you expect to spend it, and set the posture from the table above. That is the whole method, and it takes twenty minutes with a sheet of paper.

3. Rebalance annually, on a date you pick in advance. Left alone through a long bull run, a 60/40 split drifts toward 80/20, so your risk peaks exactly when valuations do. Picking the date beforehand forces you to sell what has run and buy what has lagged, which nobody does voluntarily. Add a drift threshold of around five percentage points so a violent year triggers a correction without waiting for the calendar.

4. Use a target-date fund if the alternative is never rebalancing. These shift from stocks to bonds automatically as a chosen year approaches. The glide path is somebody else's judgement rather than yours, and for anyone who would otherwise leave a portfolio untouched for a decade that is a better trade than it sounds.

What not to do

Do not use 100 minus your age as more than a conversation starter. It guesses your risk tolerance from your birth year, and it is wrong at exactly the moment it matters: a 65-year-old retiring today may have thirty years of spending ahead, and a rule putting them at 35% equities has protected them from volatility while exposing them to inflation, which over three decades does more damage than any crash.

Do not revisit the allocation every time the market moves either. It is one of the few decisions that genuinely changes outcomes and one of the most reliably ruined by tinkering. Set it, write down why, and let the calendar rather than the news decide when you next touch it.

Where this leaves you

List every pot of money you hold and the year you expect to spend it. That list, not your age, sets the split. Keep near-term money out of the market, hold six years of spending in cash and bonds once you are drawing down, and rebalance annually on a fixed date.

Once a year is enough. Checking more than that produces fiddling rather than improvement, and the fiddling is what costs money.

If you think the five-to-seven-year buffer is too conservative for your circumstances, argue it out in the Discord below. The interesting cases are the ones where somebody's real situation does not fit the general rule.

FAQ

Is the 100-minus-age rule ever fine to use? As a rough starting point for someone whose age and time horizon genuinely line up, yes. It stops being useful the moment they diverge, which happens constantly.

What's a target-date fund, and does it solve this? A fund that shifts automatically from stocks to bonds as a chosen year approaches. It will not match your exact situation, but for anyone who would otherwise never rebalance, it beats doing nothing.

How often should I actually check my allocation? Once a year is enough. Checking more than that tends to produce fiddling, not improvement.

Not investment advice. Asset allocation does not eliminate the risk of loss. Tax treatment of retirement accounts varies by country.