Yes, that’s the one about how much you should allocate to bonds and how much to equities. So at age 65 you should have 65% in bonds and 35% in equities. You don’t hear so much about this rule nowadays. The idea of course was that as you get older you should take less risk because a market downturn of 40% or so would decimate your retirement savings. This was particularly of importance when in the UK the most common decision on reaching retirement was to purchase a lifetime annuity, so capital preservation in the years leading up to retirement was of crucial importance.
Things have moved on a lot in recent years. Fewer people are purchasing annuities, income drawdown is increasingly popular and thankfully we are living much longer so we need to plan for our income to last 30 or 40 years and bonds do not provide the growth necessary to preserve our capital so far into the future.
However, bonds can serve an important role in a retirement income portfolio in order to reduce volatility – and volatility can be a far greater danger to a retiree drawing income from his portfolio than low portfolio growth. Volatility v investment growth will be the subject of another blog.
