How Much of Your Retirement Should Be in Bonds?

Should your retirement portfolio be 60% stocks and 40% bonds? Or would 70/30 give you more growth? Maybe 50/50 feels safer?

Ask around and you'll hear strong opinions. Some say a retirement portfolio should be 60% stocks and 40% bonds, others insist on 70/30 for more growth, and still others argue for 50/50 to play it safe.

It's a real debate—and for most retirees, it's the wrong place to start.

The percentage shouldn't be your first decision. It should be the result of a better one.

What Is the 60/40 Portfolio—and the 70/30 vs. 50/50 Debate?

The 60/40 portfolio—60% stocks for long-term growth and 40% bonds for stability and income—has long been the benchmark and the rule of thumb people reach for when they think about retirement allocation.

There's nothing wrong with it as a reference point.

Lately, however, the rule of thumb has drawn challengers.

Some argue for 70/30, reasoning that retirements can last decades and need more growth. Others push in the opposite direction toward 50/50, calling anything more aggressive too risky.

So you end up with a tug-of-war between three round numbers—each defensible, but none clearly right for you in particular.

The Problem With Leading With a Percentage

A percentage is a theoretical answer to a very practical question.

What you actually need from your portfolio is income—a specific amount of money arriving when you need it.

A ratio like 60/40 doesn't tell you whether next year's living expenses are covered. It simply describes the shape of the pie.

Your mortgage, groceries, healthcare, travel expenses, and other costs don't arrive as percentages. They arrive as dollar amounts.

That's why the percentage shouldn't necessarily be your first decision.

Bond Funds and Individual Bonds Are Not the Same Thing

There's another wrinkle that much of the allocation debate skips: many traditional approaches assume you're holding stock funds and bond funds.

But a bond fund has no maturity date. Its value continually changes with interest rates and market conditions.

In 2022, that distinction became especially important. Bonds experienced one of their most difficult years historically while stocks were also falling.

For retirees who expected the bond portion of their portfolio to provide a stable anchor whenever stocks declined, that experience was uncomfortable.

A Better Starting Point: Line Up Your Income, Not a Ratio

Here's the approach we use instead.

Rather than starting with a percentage, start with a dollar amount: How much income do you need?

Figure out your monthly and annual spending needs first.

Then consider setting aside at least the next five years of the income you'll need from your portfolio in individual bonds—rather than bond funds—with maturity dates arranged so bonds come due over those years.

That allows the money to become available when you expect to need it.

Because an individual bond matures on a defined date, your near-term income strategy doesn't have to depend entirely on where the stock market or interest rates happen to be when you need the money.

Everything above that five-year reserve can then remain invested for longer-term growth.

Why Five Years of Retirement Income Matters

Having several years of anticipated spending needs accounted for outside the stock market can provide an important buffer when markets become volatile.

If stocks experience a major decline, you may not need to immediately sell those investments to pay your living expenses.

Your near-term income has already been mapped to the bond portion of the strategy.

This doesn't eliminate investment risk.

It does help separate the money you expect to need soon from the money that has more time to remain invested for growth.

So What Percentage Do You Actually End Up With?

Here's the part that ties everything together.

When you build the plan this way—income first, with bonds matched to that income—the resulting bond percentage often lands somewhere around 30% to 40%.

That's not coincidentally right in the neighborhood everyone has been debating.

The difference is that you arrived there for a reason specific to your life rather than adopting a round number from a chart.

Whether the final number is 33%, 37%, or 40% isn't necessarily the most important part.

What matters is that the income you expect to need is matched to bonds that mature according to the plan.

For some retirees, that calculation may push the bond share closer to 50%, and that can be perfectly appropriate.

The percentage is an output of the plan, not the input.

60/40 vs. 70/30 vs. 50/50

Instead of viewing these allocations as competing strategies, it may be more helpful to understand what each one represents.

A 70/30 portfolio puts more of the portfolio in stocks and places greater emphasis on long-term growth.

A 60/40 portfolio increases the bond allocation and has historically been viewed as a more balanced approach.

A 50/50 portfolio puts even more emphasis on bonds and reduces exposure to stock-market fluctuations.

But none of these percentages automatically tells you whether your actual retirement income needs are covered.

The appropriate allocation depends on factors including:

• Your annual spending needs
• Social Security income
• Pension or other income sources
• How much income your investments must provide
• Your retirement time horizon
• Your tolerance for market volatility

Once those factors are understood, determining the appropriate stock-and-bond allocation becomes much more meaningful.

A Word on "Guaranteed" Income

It's worth being precise here because retirement income deserves honesty rather than salesmanship.

No investment is entirely without risk.

However, high-quality individual bonds held to maturity are designed to return a known amount on a known maturity date, assuming the issuer meets its obligations.

That characteristic can make them highly useful for mapping out near-term retirement income.

By using high-quality bonds and holding them to maturity, you can reduce much of the uncertainty surrounding the portion of your portfolio you're counting on during the next several years.

That doesn't make them risk-free, and the word "guaranteed" still requires qualification.

It does make the timing of the investment easier to coordinate with your income plan.

The Bottom Line

The 60/40-versus-70/30-versus-50/50 debate isn't necessarily wrong.

It's simply starting from the wrong end.

Don't begin with a percentage and hope it fits your life. Begin with the income you actually need.

Determine how much of that income must come from your investments, account for the next several years of those needs using individual bonds with planned maturity dates, and allow the remainder of the portfolio to focus on longer-term growth.

When you build the strategy that way, the stock-and-bond percentage becomes an output of the plan instead of an arbitrary starting point.

And that's ultimately much more useful than debating whether 30%, 40%, or 50% belongs on a pie chart.

Frequently Asked Questions

1. How much of my retirement portfolio should be in bonds? Rather than choosing a percentage first, determine how much income your portfolio needs to provide and consider setting aside at least five years of those income needs in individual bonds that mature on a planned schedule. When portfolios are structured this way, the bond allocation often falls somewhere around 30% to 40%, although the appropriate amount depends on the individual retirement plan.
2. Is the 60/40 portfolio still a good strategy for retirement? A 60/40 portfolio can still be a useful reference point, but a fixed percentage doesn't necessarily confirm that your actual retirement income needs are covered. It also matters whether the bond portion consists of bond funds or individual bonds. Building the allocation around your required income can provide a more personalized answer.
3. What is the difference between 60/40 and 70/30 for retirees? Both describe the percentage of a portfolio invested in stocks compared with bonds. A 70/30 portfolio places more money in stocks for potential long-term growth, while a 60/40 portfolio places more money in bonds. The appropriate allocation depends on factors such as income needs, time horizon, other retirement income sources, and risk tolerance.
4. Why use individual bonds instead of bond funds in retirement? An individual bond has a defined maturity date and is designed to return its principal at maturity, assuming the issuer meets its obligations. A bond fund has no maturity date and its market value continually changes. For retirees trying to match investments with specific future income needs, individual bonds can provide greater clarity around when principal is expected to become available.
5. What is a bond ladder in retirement? A bond ladder is a collection of individual bonds with different maturity dates. In retirement planning, bonds can be scheduled to mature in different years so that money becomes available as future income needs arise. This can help reduce the need to sell stocks during periods of market volatility.