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Retirement Planning > Spending in Retirement

Is ‘Your Age in Bonds’ a Good Investing Rule? Rick Ferri Weighs In

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What You Need to Know

  • It's a good conversation starter but not an approach that works for most clients, especially wealthy ones, the CFA says.
  • Even wealthy investors are often unsure how to allocate assets and afraid to spend.
  • When a client asks about a rule of thumb, Ferri suggests, help them unpack what their financial goals really are.

Taking to the social media platform X earlier this week, Rick Ferri offered up a leading question for the contemplation of his fellow financial professionals: “Is your-age-in-bonds a useful portfolio rule of thumb?”

The rule in question states that investors should direct a percentage of their portfolio toward bond investments that approximates their age, making regular adjustments toward safer assets over time to account for their shortening time horizon ahead of retirement or some other big financial goal. Thus, the rule would suggest that a 30-year-old should hold 70% in stocks and 30% in bonds, while a 60-year-old would have 40% in stocks and 60% in bonds.

Ferri, the founder and CEO of Ferri Investment Solutions and a chartered financial analyst, stipulated in the extended post that he was “just thinking out loud” and welcomed other points of view. His own answer, though, is a pretty firm “no” — at least not for the vast majority of the wealthy clients that typical financial professionals serve.

“I think such rules are designed for the ‘average’ investor or retiree,” Ferri wrote. “But who is average? According to a 2023 survey by the Transamerica Center for Retirement Studies, median baby boomer households reported about $289,000 in retirement savings. I probably would recommend a high allocation to safe assets if a 65-year-old retiree with this amount in savings asked.”

But what if a 65-year-old retiree had $2.89 million in savings? Or even $28.9 million?

“Those are far greater than the $289,000 median,” Ferri pointed out. “Is the age-in-bonds rule useful for these people? My view is not as much for the first person — and not at all for the second.”

As Ferri and other commenters emphasized, different circumstances in the real world require different mindsets on asset allocation, such that clients with 10 times the median savings level require a hard look at the balance between spending in retirement and growing legacy assets. Those with 100 times the median, obviously, can focus even more on legacy, usually resulting in more growth assets.

In a follow-up conversation with ThinkAdvisor, Ferri said these dynamics are further complicated by clients’ behavioral tendencies, especially what he sees as a surprisingly common reluctance to spend confidently and fully enjoy one’s accumulated wealth after a lifetime of working and living below one’s means. This is why the job of the advisor is more than just dollars and cents, Ferri emphasized, and it is beholden on planners to keep such factors in mind while working with individual clients.

A Common Client Question

Ferri, who prides himself on his hourly approach to financial advice, said the motivation for his post came from the daily conversations he has with clients.

“Given my model, I speak with probably five or six individuals a day, and over time I get to talk to a lot of people about their financial situation,” Ferri explained. “One of my clients brought up the age-in-bonds rule just a few days ago, in fact. I hear about it a lot.”

In this particular case, Ferri noted, the client was a man in his early 40s who has been very successful at accumulating wealth, with a net worth around $5 million.

“So this is a guy who is doing great, financially speaking, but he had read on the internet about this rule and naturally assumed he needed to follow the ‘normal pattern’ of moving away from stocks,” Ferri said. “People who do their own retirement planning research online see this messaging all the time. It’s how target-date funds are designed, for example, and it’s really baked-in throughout in the industry. As you get closer to retirement, you should get more conservative.”

Ferri said that may be true for individuals at the median who face a genuine possibility of running short of funds in retirement and who don’t have big legacy-giving goals, but the spectrum of people who are trying to make sense of this rule of thumb goes way beyond that.

“So, you have to unwind the thinking a little bit and ask your clients, what are your goals? How many children do you have? Do you have a big charity goal? What is your bigger financial situation?” Ferri explained. “How much are we going to be using during our lifetime versus how much is legacy?”

Retirement Spending vs. Legacy

Especially for wealthier clients, Ferri’s own advice often involves dividing assets into multiple mental buckets, principally one pot that will be spent in retirement and another that will be deployed for legacy purposes.

Funny enough, Ferri said, the your-age-in-bonds approach can be sensible for managing the portion of wealth that clients plan to spend on themselves in their lifetime. This is often a far more modest amount than would be possible or even prudent.

“That’s a decent approach for the client’s own retirement spending, but I believe the legacy money can and should have a different asset allocation,” Ferri explained. “Often, it’s a bigger pot of money, and the horizon could be 30, 40 or 50 years. It could even be multi-generational, so that points towards a higher allocation towards equities.”

The Emotions of Investing Matter, Too

Ferri said it is also important to step back and think about why rules of thumb are so pervasive in the financial planning space in the first place.

“After a lifetime of working and living below their means, many people need a kind of placeholder — some place to begin thinking about what their investments should look like and what their spending should look like,” Ferri explained. “The other truth is that many people with significant means are actually still very uncomfortable with spending.”

According to Ferri, it is not uncommon for clients to come in with a $10 million or $20 million portfolio and report they are spending only $100,000 per year in retirement — far below what a basic rule of thumb like the 4% safe withdrawal rule would suggest.

“It’s how they were brought up and made this money,” Ferri noted. “Unless it came from an inheritance, they have this money because they worked hard and lived well below their means for a long time. It’s in their behavioral DNA. Many people just can’t spend $500,000 a year, even if they could afford to.”

Advisors with clients in this situation need to be respectful of their lifestyle choices but can also deliver significant value by helping them feel like they have permission to spend.

“It’s about addressing that underlying fear of running out, which is still present even when people have tremendous wealth,” Ferri said. “Another factor is that many people who came from more modest means can’t wrap their arms around the fact that they actually have a lot of money — even a ton of money.”

In such cases, the advisor can make suggestions such as “splurging” on first-class flight tickets or taking a second vacation during the summer. Over time, he explained, clients will start to see that the “extra” spending isn’t actually harming their financial security or their legacy goals.

Pictured: Rick Ferri. Credit: Kristin Gladney


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