When A Retiree Reaches This Age, It's Time To Switch To A 'Conservative' Retirement Portfolio

One of the most popular pieces of retirement advice encourages individuals to shift their investment allocation as they age into safer assets to protect themselves from a market downturn or other risks. But just like with knowing how much money you need to retire rich, it can be hard to know when to begin rebalancing your portfolio into a more conservative allocation. According to financial services company Charles Schwab, rebalancing can be a multi-stage process, but individuals should switch to a conservative portfolio by the age of 80.

The age of 80 is a crucial point in a retiree's life, because that's when several factors begin to change. Around this age, retirees are likely to face greater health care costs, and they are still required to continue taking Required Minimum Distributions (RMDs) from their IRAs and 401(k)s. These factors can lead to larger withdrawals, leading to a faster drawdown of retirement savings and less flexibility. Maintaining a conservative retirement portfolio can help retirees manage their new living expenses while reducing the risk of depleting their savings too quickly.

In retirement, your portfolio should not be set up to grow aggressively anymore; instead, it should aim to generate income for as long as you're alive. This means finding a mix of low-risk investments, such as bonds, and the right amount of cash and stocks, as abandoning stocks completely in retirement can be a costly move. According to Charles Schwab, a conservative portfolio for the 80-year-old should consist of 50% bonds, 30% cash, and 20% stocks. Meanwhile, Vector Vest recommends a more moderate allocation for retirees over the age of 75, consisting of 40% to 60% bonds, 20% to 40% stocks, and 20% to 30% cash.

With either allocation, the point still stands that retirees should not be using their savings during their later years to grow their wealth. Instead, they should look for liquid assets that can generate income. This means shifting to holdings such as government bonds that pay interest or dividend-paying stocks. As for why you should keep cash investments if you're an older retiree, that's because these can come in handy in the event of a market downturn, as you won't have to sell stocks at a loss. But even with the most optimized conservative retirement portfolio and good spending, the possibility of passing with too much in savings still exists. This is why retirees should work with estate planners to move their assets into the best investment accounts for inheritances.