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How much should an 80-year-old have in stocks?

| MoneyRates.com Senior Financial Analyst, CFA
min read

Q: Should a senior over the age of 80 have any money at risk in the stock market? I've heard some people use an "80/20" rule in that situation.

A: As simple as it is, there is some merit to using something like an 80/20 rule. Still, it's important to remember that those are broad guidelines, and thus are not suited to the specifics of every situation.

The 80/20 rule you are probably referring to is a guideline for adjusting asset allocation as a person ages. Essentially, it uses the person's age to set the percentage of lower-risk assets, such as savings accounts and bonds. So, a 30-year-old would have an asset allocation of 70 percent stocks, with 30 percent in bonds and savings accounts; a 40-year-old would have 60 percent in stocks, etc. Under that system, an 80-year-old would have 20 percent in stocks, with the remaining 80 percent in bonds and savings accounts.

The value of that kind of system is two-fold: It prompts people to adjust their asset allocation over time, which they often forget to do, and it guides them toward more conservative allocations as they grow older. Both are valid principles. However, this is a very broad, one-size-fits-all kind of tool, so it's worth thinking through how your particular situation might be different.

First, consider the role of stocks in a portfolio. For a younger person, they can help retirement savings grow. For an older person, their role is more as a cushion against inflation. People with a set amount of financial resources are especially vulnerable to inflation, and they may have enough years left for inflation to take a serious toll.

One of the mistakes people make is underestimating how long they are likely to live in retirement. The average life expectancy in the U.S. may be 78.5 years (according to the Centers for Disease Control), but if a person makes it to age 80, life expectancy extends for 9.2 more years.

This is why you don't want to get too conservative too quickly. In fact, for some 80-year-olds, 20 percent in stocks might not be enough. If you have ample means to live on, and are concerned with leaving some assets behind as a legacy, either for the benefit of relatives or charity, then you might want to have a higher percentage in stocks.

In that situation, you can mentally separate two portions of your money: the portion you will need to live on, and the portion you expect to leave behind. The portion you need to live on should have the conservative allocation associated with an 80-year-old, but the portion you expect to leave behind is earmarked for the future, and can afford a more aggressive asset allocation.

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