How to use the asset allocation calculator
The calculator starts with an investor who is 40 years old, plans to retire at 65, uses the 110 minus age rule and has $250,000 invested.
- Your age and retirement age. Age drives the rules of thumb; the years until retirement drive the glide path.
- Allocation rule. Pick one of the three age rules, the generic target-date glide path, or a custom path with your own stock share today and at retirement.
- Risk tolerance adjustment. Add or subtract percentage points at every age if you can stomach more swings, or fewer, than the rule assumes.
- Cash reserve. The share you want in cash. It comes out of the non-stock part, so it reduces bonds rather than stocks.
- Portfolio value. Turns the percentages into dollars.
- Return and risk assumptions. Example figures are used unless you choose to edit them.
The chart shows stocks, bonds and cash from your age to 95. The first table compares the stock share of every rule at ages 30 to 70; the second lists your path in five-year steps.
How the allocation is calculated
Cash = min(cash reserve, 100 − Stocks)
Bonds = 100 − Stocks − CashThe stock share is capped between 0% and 100%. All figures are percentages of the portfolio.
The target-date option uses a generic, illustrative glide path, not any fund company’s actual schedule:
From 25 years before to retirement: falls in a straight line from 90% to 50%
First 7 years of retirement: falls from 50% to 30%, then stays at 30%
The expected return and volatility of the mix use the standard two-asset portfolio formulas, with cash treated as riskless:
Volatility = √( ws²σs² + wb²σb² + 2 wswb ρ σsσb )w is each asset's weight, μ its expected return, σ its volatility and ρ the correlation between stocks and bonds. The example assumptions are 7% return and 16% volatility for stocks, 4% and 6% for bonds, 3% for cash and a 0.2 correlation. They are illustrations, not forecasts.
A worked example
At 40 years old, the 110 minus age rule gives 70% in stocks. With a 5% cash reserve, the rest is 25% bonds. On a $250,000 portfolio that is $175,000 in stocks, $62,500 in bonds and $12,500 in cash.
The stock share falls one point a year, to 45% at 65 and 15% at 95.
On the example assumptions, today’s mix has an expected return of 6.05% a year and a volatility of 11.59%. In a bad year of the kind that might come once in twenty, the portfolio could lose around 13.0%.
Comparing the rules
The three age rules differ by a fixed ten points at every age. The glide path is flatter early and steeper near retirement:
| Rule | Age 30 | Age 50 | Age 70 |
|---|---|---|---|
| 120 minus age | 90% | 70% | 50% |
| 110 minus age | 80% | 60% | 40% |
| 100 minus age | 70% | 50% | 30% |
| Generic glide path, retiring at 65 | 90% | 74% | 36% |
The 100 minus age rule is the oldest version. As people began living longer and needing their savings to last 30 years or more, the 110 and 120 versions became popular because they keep more in stocks for growth. None is more correct than the others: they are starting points that encode different attitudes to risk.
Moving between them changes both the expected reward and the swings:
| Mix today | Stocks | Expected return | Volatility |
|---|---|---|---|
| 100 minus age | 60% | 5.75% | 10.23% |
| 110 minus age (example) | 70% | 6.05% | 11.59% |
| 120 minus age | 80% | 6.35% | 13.01% |
| Generic glide path | 90% | 6.65% | 14.46% |
Target-date glide paths
Target-date funds automate the idea: you pick a fund named for the year you expect to retire, and the managers shift it from stocks toward bonds as that year approaches. Every fund family designs its own path, and they differ in how much stock they hold at the start, at the target date and afterwards. Broadly, paths fall into two groups. A path that reaches its most conservative mix at the retirement date is called a “to” glide path. A path that keeps reducing stocks for some years after the target date is called a “through” glide path. The generic path in this calculator is of the second kind.
If you hold a target-date fund, check its own published glide path rather than relying on this generic one, and avoid layering a second allocation rule on top of it.
Why the stock share usually falls with age
- Time to recover. A 30-year-old who sees stocks fall 35% has decades of saving and growth ahead. A 64-year-old who needs the money next year does not.
- Sequence risk. Losses in the years just before and after retirement do the most damage, because withdrawals lock them in.
- Future earnings. When you are young, your future paychecks are a large, fairly steady asset that balances a risky portfolio. As they run out, the portfolio has to provide the stability.
Your own situation can point the other way. A secure pension or other guaranteed income that covers most of your spending can justify more in stocks; an unstable job or a large purchase coming up can justify less. That is what the risk adjustment is for: adding 10 points takes the example to 80% in stocks today, and subtracting 10 takes it to 60%.
What this calculator does not include
- Which stocks and bonds. It splits only by asset class. Diversification within each class, between US and international stocks or between bond types and maturities, matters too.
- Fees and taxes, which reduce the return of every mix. Where you hold each asset (taxable or tax-advantaged accounts) also affects what you keep.
- Changing assumptions. Expected returns and correlations shift over time, and the simple normal-distribution estimate understates how bad the worst years can be.
- Your full balance sheet. Home equity, pensions, Social Security and a business are not in the calculation, though they affect how much risk you can carry.