A basic tenet of retirement planning instructs investors to become more conservative as retirement nears.
One of the oldest personal finance rules of thumb held that one should subtract his or her age from 100, and that number would represent the percentage of stocks to hold in a portfolio, with the rest held in bonds.
At a recent Morningstar investment conference, that basic principle was up for grabs.
Today's financial markets may be pointing investors toward starting retirement with a more conservative nest egg and allowing it to take on more stocks over time, said Michael Kitces, director of planning research for the Pinnacle Advisory Group.
To be sure, Kitces and other experts noted, there are lots of caveats to this idea. It doesn't work for ultraconservative investors or those who want to leave behind a big inheritance, for example.
For the great majority of situations, noted David Blanchett, Morningstar's head of retirement research, the traditional approach of growing more conservative over time works.
Kitces' point is that many retiring Americans happen to be precisely in the type of situation calling for a different idea.
"A rising-equity glide path doesn't work great except in one scenario: You've got a moderately aggressive portfolio at retirement in a low-return environment where you're going to be spending at a fairly high withdrawal rate, and you're just concerned about getting to the end without running out of money and not leaving a large bequest," Kitces said.
With stock valuations relatively high now, this suggests starting retirement with a low allocation to stocks — as low as 30 percent — and taking withdrawals from the fixed-income part of the portfolio so that, in effect, you'll take on a higher equity allocation over time, he said.
It also suggests sticking with a fairly low initial withdrawal rate in retirement of around 4 percent, Kitces said, but not becoming completely locked into that number plus inflation for the long haul. Like markets, he said, withdrawal rates need to be dynamic to avoid undesirable ends of underspending or overspending.
"On average, a decreasing (amount of stocks in a portfolio) is better, but there's no one best solution," Blanchett said.
In fact, for workers with more time to go before retiring, Blanchett also suggested tamping down on stocks if other areas of your life, namely your career or your real estate holdings, look risky.
His research is still imprecise, but it generally tries to customize a risk-tolerance measurement. Work in an industry prone to layoffs? Live in a volatile housing market like Las Vegas? Ratchet down on the stock part of your investments, the theory goes, though Blanchett acknowledges these are general guidelines.
Particularly for younger savers with a long career ahead of them, factoring some measure reflecting the volatility associated with their careers into their stock-bond allocation can help smooth the savings ride, he said.