Asset Allocation in Retirement

Glide paths · Bond tent · Rising equity glidepath · Rebalancing rules · Bucket strategy · Sequence risk management

The classic advice — “move to bonds as you age” — is an oversimplification that can leave retirees under-invested and running short of money. Modern retirement portfolio research shows that a more nuanced approach, including a temporary bond tent at retirement and a rising equity glidepath through retirement, can significantly improve outcomes.

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Why allocation matters in retirement Glide paths Bond tent strategy Rising equity glidepath Bucket strategy Rebalancing rules Target-date funds Practical guidelines

RiskWhy Allocation Matters More at Retirement

During accumulation, volatility is your friend — you can average into lower prices. At retirement, the math reverses: large early losses combined with withdrawals can permanently impair a portfolio.

Example: Two retirees both average 6% annual returns over 30 years — but in opposite order (good years then bad vs. bad then good). The one who got the bad returns first runs out of money 12 years earlier.

This “sequence-of-returns risk” is why a 100% equity portfolio at retirement is risky — not because of long-run returns, but because early bad years can't be recovered from when you're withdrawing.

Glide PathTraditional Glide Paths

A glide path is a rule for how to shift from stocks to bonds over time. The classic rules:

Rule	Age 60	Age 70	Age 80
Age in bonds	60% bonds / 40% stocks	70% bonds	80% bonds
110 minus age	50% stocks	40% stocks	30% stocks
120 minus age	60% stocks	50% stocks	40% stocks
Vanguard Target 2025	~50% stocks	~35% stocks	~30% stocks

Research by Wade Pfau and others suggests these traditional rules are too bond-heavy for early retirees with 25–35 year horizons, especially in low-yield environments.

Bond TentThe Bond Tent Strategy

A bond tent (also called a “rising equity glidepath”) starts with a temporarily higher bond allocation at retirement and then increases equity exposure in later retirement years. It looks like this:

Phase	Stock %	Bond %	Rationale
5 years before retirement	60%	40%	Gradual de-risking as retirement nears
At retirement (peak bond tent)	40–50%	50–60%	Maximum protection against early crash
Age 70 (SS starts, income secured)	50–55%	45–50%	Rise equities as sequence risk window closes
Age 75+	55–60%	40–45%	Need growth for potentially 20+ more years

The intuition: the first 5–10 years of retirement are the most dangerous for sequence risk. Once you've survived that window with your portfolio intact, growing your equity share helps ensure you don't run out of money at 85 or 90.

BucketsThe Bucket Strategy

The bucket strategy divides your portfolio into time-segmented “buckets,” reducing psychological stress and providing systematic spending guidance:

Bucket	Allocation	Time horizon	Contents
Bucket 1 (Spending)	5–10% of portfolio	Years 1–2	Cash, money market, CDs maturing soon
Bucket 2 (Bridge)	20–30%	Years 3–10	Short/intermediate bonds, bond funds, I-bonds
Bucket 3 (Growth)	60–70%	Years 10+	Diversified equity index funds

You spend from Bucket 1 first. Refill Bucket 1 from Bucket 2 annually, and Bucket 2 from Bucket 3 during good market years. In a crash, you pause the refill and live from Buckets 1–2 while Bucket 3 recovers.

The bucket strategy is primarily behavioral/psychological. Mathematically, it produces similar outcomes to a total-return approach — but many retirees manage the emotional volatility better with buckets.

ResearchWhy Equity Should Rise in Later Retirement

This is counterintuitive but well-supported by simulation research (Pfau & Kitces, 2014):

In later retirement (ages 80–95), you have fewer years remaining, so individual bad years matter less — the portfolio has less time to compound in the wrong direction from withdrawals.
If you've survived the sequence risk window and still have a large portfolio at 75, you need equities to avoid running out of money in your 90s.
Social Security (and potentially a pension) creates a “floor” of protected income — this means the portfolio effectively has bond-like backing already, and remaining assets can be more aggressively invested.

RebalanceRebalancing Rules

Threshold-based: Rebalance when any asset class drifts more than 5% from target. More responsive than calendar-based.
Calendar-based: Rebalance annually (or semi-annually). Simple and predictable. Popular among Bogleheads.
New money / distributions first: Direct new withdrawals (or RMDs) from overweight assets — avoids transaction costs and tax events where possible.
Tax-location aware: Rebalance more aggressively inside Roth IRA (no tax cost for trades). Avoid generating short-term gains in taxable accounts.
After a crash: Rebalancing into equities after a 20%+ drop has historically improved long-term outcomes. Requires emotional discipline.

TDFTarget-Date Funds: The Easy Path

Target-date funds (TDFs) handle asset allocation and rebalancing automatically. At retirement, a 2025 TDF (for someone retiring in 2025) typically holds ~50% stocks / 50% bonds, and continues to shift toward bonds over time.

	TDF Advantage	TDF Disadvantage
Simplicity	One fund, automatic rebalancing and glide path	No customization
Cost	Low expense ratios (Vanguard: ~0.10–0.15%)	Slightly higher than individual index funds
Tax efficiency	Good inside 401(k)/IRA	Bond funds inefficient in taxable accounts
Glide path	Researched default	May be too conservative for long-lived retirees

For a DIY alternative, a simple two-fund portfolio (e.g., 60% VTI + 40% BND) with annual rebalancing rivals most TDFs at lower cost and more control.

SummaryPractical Guidelines

At retirement, aim for 40–50% equities (not 30%) if you have a 25+ year horizon. The long tail of retirement demands growth.
Consider a bond tent of 5–10 years of spending in bonds/cash at retirement to absorb a crash without forced selling.
Once your portfolio has survived 8–10 years and SS is on, you can begin raising your equity allocation back toward 50–60%.
Keep at least 2 years of spending in stable/cash at all times so you never have to sell equities in a down market.
Don't confuse asset allocation with account type. You can hold equities in your Roth (for tax-free growth) and bonds in your traditional IRA (interest is taxed anyway).
Review and update your allocation annually, not in response to market moves.

Related guides & scenarios

🏛️ Official Government Resources

SEC investor.gov: Introduction to Investing ↗ — U.S. Securities and Exchange Commission education on asset classes, risk tolerance, and portfolio construction.
SEC investor.gov: Investor Bulletin — Market Volatility ↗ — How to think about market volatility and maintain a long-term investment perspective.
Federal Reserve: Financial Accounts of the United States ↗ — Real aggregate data on household asset allocation from the U.S. central bank.