If you’re 60 or older, you may be confused as to how much money you should have in stocks. You’ve always heard that the older you are, the less risk you should take on. On the other hand, you may want or need the additional income and savings growth you can earn from stocks. So, how much should a 60-year-old have in stocks?

The traditional answer is straightforward. And we’ll look at that traditional answer. But, you are not a traditional person and your needs may be different.

We’ll look at why the traditional thinking on retirement planning no longer applies as broadly. And why it almost definitely doesn’t apply to you. Then we’ll look at strategies that may make more sense in determining how much you should have in stocks at age 60 or older.

A jar full of coins labeled "retirement" - but how much should you have in stocks at 60?

The Traditional Retirement Planning Model and Stock Allocation

How much money a 60-year-old should have in stocks used to be easy to calculate. In fact, it required virtually no thought. All you needed was a simple formula.

The basic formula you needed to determine how much money you should have in stocks at retirement age was as follows:

Percent of Your Money in Stocks = 100 – Your Age

That’s it. So, for example, if you are age 60, then you would calculate your stock allocation as follows when planning for retirement:

Percent of Your Money in Stocks = 100 – 60 = 40

Therefore, you should have 40% of your money allocated to stocks. The rest of it should be distributed between government bonds, investment grade corporate bonds, cash and other safer investments.

To take another example, if you are age 72, then the allocation equation would work as follows:

Percent of Your Money in Stocks = 100 – 72 = 28%

It doesn’t get much simpler than that when it comes to retirement planning. In fact, retirement planners all over the country could get paid a pretty penny just to tell you that. Lucky them!

However, things are quite different today than they were 30 or 40 years ago. As a result, the amount of money you should have invested in stocks as a 60-year-old has changed pretty radically.

Why is that the case? Let’s look at two major factors that have affected how much money a 60 year old should have in stocks today.

Factors Affecting Stock Allocation at Age 60

There are at least two major factors that affect how much a 60-year-old should have in stocks these days. They are as follows:

  1. The average lifespan is increasing
  2. Bond yields are terribly low

Let’s look at each of these reasons in more depth.

The Average Lifespan Is Increasing

Of course, the fact that the average lifespan is increasing in the United States is an excellent thing. And it most certainly affects how much money you should have in stocks at age 60 and above.

The average life expectancy for an American in 1960 was 70 years old. As a result, the average 60-year-old American only needed to have their money last for 10 years if they retired at age 60.

The case is very different today. In 2017, the average life expectancy for an American was 79. So Americans are living almost 10 years longer than they used to.

Today, if you retire at age 60, you need to have your money last for a whopping 20 years. So your money has to last twice as long as it used to.

Now, in theory, you could still use bonds and other safer investment instruments to grow your wealth enough to do this. However, theory and practice are two different things. And this is another way the world has changed when it comes to how much you should have in stocks at age 60.

Bond Yields Are Terribly Low

The truth of the matter is, a 60-year-old used to be able to get away with putting most of their money in safer assets like treasury or corporate bonds.  And they would still have plenty of money saved to enjoy the retirement that they wanted.

But this is quite simply no longer the case. Bond yields have dropped an astonishing amount over the last 30 to 50 years. Let’s take a look at the specifics.

In 1980, you could earn nearly 15% just from owning treasury bonds! With yields like that, you can understand why 60-year-olds would consider a bond-heavy allocation to be a viable retirement strategy.

After all, the stock market averages about 8% annually. Who wouldn’t want to earn twice as much money with much less risk? It’s a no-brainer situation.

Alas, all good things must pass and the 15% treasury bond rate has gone the way of the dodo. In 2020, yields on treasury bonds have decreased so drastically that you now earn less than 1% on a treasury bond.

That situation may change someday. But right now, counting on a portfolio allocated mostly to bonds to carry you all the way through retirement – especially a happy, flourishing retirement – is a bit of a pipe dream.

So How Much Should an Age 60+ Person Put in Stocks Now?

If you are 60 or older in 2020, you need to abandon the old way of thinking. Putting 40% or less of your money in stocks is just no longer going to cut it.

As a result, financial planners have adapted the traditional formula to more recent times. For example, instead of subtracting from 100, you could subtract your age from 110 or 120. Let’s take an example using 120:

Percent of Your Money in Stocks = 120 – 60 = 60

If you are age 60 and subtract this number from 120, the new formula will reveal that you should have 60% of your money allocated to stocks. That means that, unlike before, you would now have the majority of your money in stocks.

Considering how low bond yields are and your expected life span, this formula makes much more sense. However, even the adapted formula doesn’t work for everyone.

There are other questions to consider when determining how much money you should have in stocks, including:

  • what is your current lifestyle like?
  • what are your major retirement goals?
  • how much risk tolerance do you have?
  • how much wealth do you currently have?
  • do you want to leave some money for your children?

All of these factors can help you determine how much money you should have in stocks at age 60. Your retirement planning should take all of them into account.

The Bottom Line

How much money a 60-year-old should have in stocks varies with the individual. That said, it’s clear that, thanks to a changing health and economic environment, investors likely need more money allocated to stocks in retirement than they used to.

With all of that in mind, people age 60 or older need great investment advice as much as their younger peers do. In fact, because many millennials and members of Gen Z are still not investing, you may need it a great deal more.

How much money you should have in stocks at 60 is clearly a greater percentage today than at any other time in history. Now the question becomes, what can you do today to maximize your retirement money and live the wealthy lifestyle you deserve in retirement?