Stop Investing Your Age
There’s a common piece of advice in the financial world: "Subtract your age from 100, and that’s how much you should have in stocks."
It sounds simple. But in my experience, I’ve found that following this one-size-fits-all rule is one of the biggest risks you can take with your nest egg. It ignores the reality of your life, your goals, and your actual income needs.
Two People, Same Age, Different Realities
Let’s look at two 65-year-olds, both with $500,000 saved:
John has a pension and Social Security that covers all his basic bills. He doesn’t need to touch his $500,000 for day-to-day living.
Greg has no pension. He needs to pull $20,000 a year from his $500,000 to supplement his income to cover his mortgage and living expenses.
If they follow the "100 minus your age" rule, both would have 35% in stocks and 65% in "safe" bonds. But, given their vastly different circumstances, does it make sense for them to have the exact same portfolio? Absolutely not.
The Hidden Risk of "Playing it Safe"
John doesn't need to be conservative. By forcing himself into that 35/65 split, he’s probably sacrificing future growth. Historically, stocks have averaged 8–10% over the long run, while bonds have averaged closer to 4%.
At a 4% return (the "safe" route): John’s $500,000 grows to about $1.3M over 25 years. But after accounting for 3% inflation, his purchasing power is only $641,000 in today’s dollars. He hasn't really grown his wealth at all.
At an 8% return (the "growth" route): John’s $500,000 grows to over $3.4M. After inflation, he has over $1.6M in today’s purchasing power.
If John plays it too safe, he’s not "protecting" his money—he’s exposing himself more to the hidden risks of inflation.
What about Greg?
Greg needs cash now. But if he goes "conservative" and earns 4% while pulling $20,000 a year (adjusted upward annually for inflation), look at what happens to his purchasing power over the years:
After 5 years: $425,756
After 10 years: $347,838
After 25 years:$90,172
By age 90, Greg is nearly broke. Any additional healthcare needs late in life could wipe him out. He hasn't avoided risk; he’s just traded "market risk" for "inflation risk". The latter, I'd argue, is more punishing over the long term.
My "Needs-Based" Rule: The 5-Year Window
For Greg, we wouldn't just look at his age; we'd look at his liquidity needs. My rule is simple: Any money you need in the next 5 years should be kept out of the stock market. The rest stays invested for long-term growth.
The Safety Bucket: We pull 5 years of income ($100,000) out of the market. This is Greg’s "sleep-at-night" money.
The Growth Engine: The remaining $400,000 stays invested for the long term to pay for future income needs.
Why 5 years?
- Historical Odds: The stock market has historically produced a positive return about 90% of the time over any 5-year period. In other words, if you can leave your money in the stock market for 5 years or more, you’re very likely to earn a positive return.
- Recovery Time: Even in the "nasty" downturns like 2008, the market recovered in less than 5 years.
By setting aside 5 years of living expenses in cash or stable investments, Greg can ride out any market storm without being forced to sell his stocks when prices are down. That is the only way to turn a temporary market dip into a permanent loss: selling during one.
The Result
When we re-ran Greg’s math using this "5-Year Bucket" strategy, he finished with over $540,000 (inflation-adjusted) after 25 years—nearly 6x more than the conservative strategy.
Don’t invest your age. Invest your life.
Your situation is unique. You shouldn't be following a cookie-cutter rule of thumb. If you're nearing retirement and want to make sure your strategy is built for your goals—not just some "one size fits all" gimmick—let’s talk.