In retirement, your equities exposure is the make-or-break factor

Attention retirees: Being overly conservative with your investments after exiting the workforce raises the likelihood you’ll run out of money in retirement. 

Many retirees may have heard from friends or family members to take a conservative approach in retirement. But the conventional wisdom has changed. Modern thinking among financial advisors is that equities should be a meaningful part of every retiree’s portfolio — often between 40% and 80% — to generate income and mitigate inflation and longevity risk. 

In the past, there was a general rule of thumb to reduce the equity portion of a portfolio as soon as you retire, to about 30%, at most, said Cheri Belski, head of investment management solutions at LPL Financial in Fort Mill, South Carolina. “The new way of thinking is to get intentional about retirement, not conservative.”

There’s no single target allocation that fits every individual in early retirement. Rather, coming up with an appropriate equity exposure means crunching the numbers, taking into account factors such as account age, risk tolerance, income, assets, spending needs and taxes, to increase the likelihood that retirees’ nest eggs will last 30 years or more. The stakes are especially high, given that more than 11,200 Americans turn 65 every day — or over 4.1 million every year — from 2024 through 2027, according to estimates from the Retirement Income Institute at the Alliance for Lifetime Income.

“To me, equities aren’t about taking more risk; it’s about giving your portfolio a fighting chance to keep up with your life,” Belski said. “You’re probably going to have 30 years in retirement. You want to make sure you have the assets to support it.”

Here’s what retirees need to know about holding equities in their investment portfolio.

Inflation, longevity risk require portfolio growth

“You need a portfolio allocation that has long-term growth benefits, and equities can serve that purpose — to address longevity risk and inflation,” said Stuart Katz, chief investment officer of Robertson Stephens in San Francisco. There’s no need to be overly aggressive, but, rather, the approach in retirement should be “growth with guardrails,” he added.

Collin Lindsey, managing director and wealth manager at the Lindsey Trost Group of Steward Partners in Lake Oswego, Oregon, generally recommends clients in their late 60s and early 70s allocate about 40% to 60% to equities, depending on other retirement resources, lifestyle, needs and risk profile. The equity portfolio might include individual stocks, exchange-traded funds, unit investment trusts and REITS, depending on the client’s goals. He recommends that retirees limit volatility in their portfolio where possible. That likely includes avoiding high-volatility assets like IPOs. A recent example of this is SpaceX, which since its first trade on June 12, has lost more than $500 billion in market cap. “If you have a big downswing and you need to take the money out to live on, you’re never going to get it back,” Lindsey said.

Diversification also remains important in a retiree’s portfolio. Within equities, retirees should have international holdings and stocks with different market capitalizations. Some holdings should be growth-focused, and some should focus on income through dividends. Don’t get overexposed to a particular sector such as technology, even if that’s where it seems a quick way to generate returns, advisors said.

Stock market exposure should not be fixed in retirement

Just because you start with one equity allocation in retirement doesn’t mean it’s where you should be later on. If your expenses increase, for instance, you might need a slightly more aggressive equity allocation for income purposes, said Matt Gentzkow, managing director and wealth advisor at Coastal Bridge Advisors in Nashville, Tennessee.

When determining an appropriate allocation, it’s also important to consider whether your goals include leaving an inheritance to children and grandchildren. Maybe you’ve satisfied your retirement income needs but want to provide for the next generation, which expands the time horizon and allows you to be more aggressive, Gentzkow said. 

Be sure to stress-test the financial plan, so that if you go through a period of lower returns, it remains appropriate for your financial needs. While returns for the S&P 500 over the past decade have been extraordinary — double-digit percentage returns in the majority of the years and over 20% gains in four of the past ten — Gentzkow likes to project a more conservative rate of return, around 6% or 7% for stocks. 

It’s advisable to revisit the allocations at least once a year, taking into account market conditions and your finances, said Brad Rollins, chief investment officer for Mariner in Tulsa, Oklahoma. Did the portfolio change drastically? Did anything major change in your life that requires extra spending, such as a health issue or deciding to offer extra financial support to an adult child?

Investing for 80 and beyond: More income, wealth preservation

As retirement progresses, many advisors suggest shifting the focus to income and capital preservation, while still maintaining equity exposure. An 80-year-old today might live to age 95 or 100, which means they’ll need the money for another 15 years or more. “Even at 80, you might want equities at a 20% to 40% range. Not zero,” Katz said. 

This could be accomplished by adding more stocks that pay dividends, for example. A model portfolio for income could include income ETFs, large-cap individual stocks and international stocks that pay a higher dividend rate, said Lindsey. 

There are many ways to get income within equity funds. For instance, Capital Group Dividend Value ETF (CGDV), Fidelity High Dividend ETF (FDVV), JPMorgan Dividend Leaders ETF (JDIV) and Schwab International Dividend Equity ETF (SCHY) are considered by Morningstar to be among the best high-dividend ETFs for passive income in 2026.

Target-date funds offer a simpler solution

For simplicity, many do-it-yourself-investors might want to consider a target-date fund based on their expected retirement year. These funds often become more conservative around the target date, but some continue to have a significant equity allocation as retirement progresses, though it may still fall below the range (40% to 80%) now considered appropriate by many advisors given the concerns about inflation and longevity. American Funds, T. Rowe Price and Vanguard are among fund companies that offer target-date funds to support lifetime income. 

These funds generally reduce equity exposure gradually for 10–20 years after the target date, but don’t eliminate the exposure. Vanguard, for example, drops the total stock market exposure to 30% seven years after the retirement year is reached. Make sure you know what type of target-date fund you’re buying and how the allocation percentages change over time, said Belski. Start by choosing a fund that matches the year you plan to retire, then read the description carefully to make sure it matches your long-term plans, she said.