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5 rules for investing in retirement

Managing your portfolio with new risks and priorities in mind takes careful planning and regular monitoring. Here’s how to get started.


HEADS UP: INVESTING IN RETIREMENT isn’t the same as investing for retirement. All the smart strategies you used to help you accumulate enough for retirement will likely need adjusting as you approach and enter the next chapter of your life.


Think of it, in part, as a shift in perspective from investing for the really long term to being much more aware of — and prepared for — shorter-term risks. “If anything, investing in retirement is a bit more complex, given the variety of potential risks and uncertainties,” says Anil Suri, a managing director in the Chief Investment Office for Merrill and Bank of America Private Bank.


So where do you begin? It can start with a thorough portfolio review with your advisor, ideally at least three years before you retire. “That will give you time to consider a number of important decisions as you enter this very different phase of life,” Suri adds. After you retire, plan to revisit your portfolio quarterly. When you do, keep these five investing guidelines in mind.


1. Review your asset allocation with new risks in mind.

In mid-career, you could afford to be more aggressive with your portfolio in pursuit of gains. After you leave the workforce, though, because you’re drawing down those assets rather than contributing to your 401(k), and have less time to recover from market drops (see Rule 4), a more conservative approach may make sense. But at the same time, being too conservative heightens the risks of outliving your money and failing to keep pace with cost-of-living increases.


Consider that even a modest annual inflation rate of 2.5% would erode the spending power of a dollar by 46% over a 25-year period. (See the chart below.) And at least one spouse in a couple, both age 65, has a 50% chance of reaching 92 — and a 10% chance of reaching 100.1


Discuss with your advisor: Are your current fixed income and dividend stock investments sufficient to supply you with the income you’ll need over many years in retirement, given the potential for inflation and market volatility? And will your current asset allocation provide the potential growth you may need to cover another 20 years or more? Finding the right balance for your personal situation is key. See Rules 2 and 3.

Graphic showing the effects of inflation over time. See link below for a full description.

Source: Calculations by Bank of America Chief Investment Office, March 2024.

2. Prioritize your immediate cash needs.

If your non-investment income (Social Security, a pension, income from a part-time job) covers all or most of your essential expenses — healthcare, housing and so on — you can take on more investing risk. If not, you may want to adjust your mix so that more of your investments are lower-risk assets, such as U.S. Treasuries, high-grade corporate bonds or annuities, and earmarked to provide a guaranteed income stream that can help fund your basic needs.


“You want a high level of certainty around the investments that are supporting your essential lifestyle,” Suri says. “Beyond that, you need to pursue more growth.” And as you assess your essential, more flexible (travel, buying a vacation home, etc.) and aspirational (charitable giving) expenses so you can invest accordingly, keep in mind that you may end up spending more than you anticipated in retirement, especially on healthcare.


Graphic showing how spending in retirement differs from what pre-retirees expect. See link below for a full description.

Source: Employee Benefits Research Institute and Greenwald Research, “2023 Retirement Confidence Survey,” April 2023.

3. Don’t abandon stocks.

“When you reach retirement, you may feel like you’re taking on a lot more risk than you want to with your equity investments,” says Suri. But while stocks are susceptible to short-term price swings, they also give you the best chance of staying ahead of inflation and helping your money last.


While you may have previously felt comfortable with an aggressive equity allocation, you and your advisor could now find that a more balanced allocation, say 50% to stocks and 50% to bonds, provides the greatest likelihood of providing you with the growth you need.


Take a look at how various allocations could perform over time below.

Graphic showing the probability of not outliving your wealth with different portfolio allocations. See link below for a full description.

Note: Assumes 65-year-old female spends 3.5% of her wealth the first year of retirement and increases this spending in line with inflation annually (based on CIO inflation assumption of 2.8%). Withdrawals are taken at the end of each year, at which time the portfolio is rebalanced. Planning horizon is 30 years. The proxy for U.S. stocks is the S&P 500 Index; for U.S. bonds, the ICE BofA U.S. Broad Market; for cash, the ICE BofA U.S. Treasury Bills 3 months. These hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate, and, when redeemed, the investments may be worth more or less than their original cost. Source: “Pitfalls in Retirement,” Chief Investment Office, July 2023.

4. Prepare for volatility, especially early in your retirement.

“Volatility is unnerving for any investor and can be especially damaging early in retirement,” says Nevenka Vrdoljak, a managing director in the Chief Investment Office for Merrill and Bank of America Private Bank. When you’re investing for retirement, you’re likely making regular contributions to your 401(k). Once you leave the workplace, however, you’re not only withdrawing funds regularly, but you’re also no longer making fresh 401(k) contributions (and you can fund an IRA only if you have earned income).


At this stage, with any stake in stocks, you need to guard against what’s called sequence of returns risk. It’s what happens when a steep market drop in the first few years of retirement forces you to draw down stocks for your income needs at depressed prices. You may find you have to withdraw more than you’d intended, which in turn could have an outsized impact on your remaining wealth.


That’s why it’s a good idea to review the amount of liquidity you have in your portfolio as you enter retirement. Having cash and short-term bonds or bond ladders on hand can help you navigate down markets, says Vrdoljak. “Adding more guaranteed income could also help minimize sequence of returns risk,” she adds. “You might enhance your income by purchasing a lifetime annuity or delaying the age when you claim Social Security.” That larger benefit can let you draw down less from your investments later.

Graphic illustrating the effect of a bear market early in retirement. See link below for a full description.

Note: For illustrative purposes only. Assumes 50% stock/50% bond portfolio, 5.2% average annual returns and $50,000 annual distributions. Source: “Investing for Retirement,” Chief Investment Office, February 2023.

5. Stick to your plan — and review it regularly.

Creating a solid retirement investment strategy is one thing; sticking to it is another. “We’re prone to both overconfidence and underconfidence,” Suri says. And our emotions can sometimes cause us to act too hastily when markets get volatile, particularly in retirement. If you have an advisor or have considered working with one, they can help you avoid emotional mistakes during such times.


Reviewing your plan regularly with the help of your advisor — quarterly or, at a minimum, once a year — just as you did when you were saving for retirement, can also help you feel more in control. But remember, just by having a plan in place, you’re at an advantage. “One of the greatest threats to a secure retirement is the failure to have a plan,” Vrdoljak says. Developing a retirement investing plan — and sticking to it through the ups and downs of the market — may be the most important rule there is.


Graphic illustrating typical equity fund investor returns versus the overall stock market. See link below for a full description.

Note: As of December 31, 2022. Source: Dalbar, Quantitative Analysis of Investor Behavior, 2023.

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1 Chief Investment Office, calculations based on Society of Actuaries, 2012 Individual Annuity Mortality Tables, Basic.




Opinions are as of 02/25/2024 and are subject to change.


Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.


This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).


Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.


Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad.


All contract guarantees or annuity payout rates for annuity contracts and all guarantees and benefits of insurance policies are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.


Dividend payments are not guaranteed and are paid only when declared by an issuer’s board of directors. The amount of a dividend payment, if any, can vary over time.


This material should be regarded as educational information on Social Security and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact the Social Security Administration and/or your legal advisors.


Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.


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