The Rule of 100: How Much Risk Should You Really Take in Retirement?

Transcript

Hi, I’m Brent Matthew with Scottsdale Wealth Advisory. One of the biggest questions I hear from clients is, “How much risk should I be taking right now?” It’s a fair question. You want your money to grow, but you also want to protect what you’ve worked so hard to build.

In this video, I walk you through something called the Rule of 100. It’s a simple way to figure out a reasonable starting point for your investment mix. And we’ll talk about how things like annuities can play a role too.

How the Rule of 100 Formula Works

So what is the Rule of 100? It’s a quick formula that helps you estimate how much of your portfolio should be in more conservative investments versus more aggressive ones. Here’s how it works. 

Calculating Your Risk Allocation Based on Age

You take 100 minus your age. The number you get is the maximum percentage of your portfolio that might be in higher-risk investments, like stocks. 

Let me give you an example. If you’re 67, you take 100 minus 67, that gives you 33. That means a starting point might be 33% of your money in growth-oriented investments and the 67% in more conservative investments, such as bonds, cash, or annuities, or a combination. 

Another way to think about it is to simply take your age and that is the percentage you want to have allocated to investments that have little to no loss exposure.

Adjusting Your Investment Mix As You Age

And guess what? Just as I previously mentioned, the older you get, the higher that percentage becomes that will be tied to those safe investment options. 

Now, is it perfect? No, but it’s a helpful baseline for having a conversation about your risk tolerance, your retirement income needs, and how long your money needs to last.

Conservative Investments in Retirement Planning

If you watched the last video about the three-bucket strategy, this rule helps guide how much goes into each one of those buckets. The conservative portion, like your income and short-term buckets, might hold 60-70% of your money, depending upon your age. The rest could be positioned for long-term growth. 

Again, it’s not a one-size-fits-all rule, but it’s a great place to start.

What Belongs in the Conservative Allocation

So once you know how much should be in the conservative portion of your portfolio, the next question is, what should go in there? And this is where annuities can come into the picture. 

If you are in that 67% conservative range, annuities (especially fixed or fixed indexed annuities) can provide principal protection and reliable income without the same risks you’d take on with stocks or bonds. Remember, these types of annuities can act as a bond alternative or even replace part of your conservative allocation with something that offers safety of capital with guaranteed lifetime income.

In other words, they’re not about chasing returns, they’re about creating stability in retirement. 

Aligning Your Portfolio With Your Stage of Life

The Rule of 100 is just a starting point, but if you’re unsure whether you’re taking on too much risk or maybe not enough, it’s worth looking at your current allocation through this lens.

And if you’re wondering how annuities might fit into that picture, we cover that in more detail in another video in this series. At the end of the day, your money should match your stage of life and your comfort level. And the Rule of 100 is a simple, smart way to begin that conversation.

Thanks for watching and I hope to see you in the next video.