Using a Bond Cushion by Age
Using a Bond Cushion by Age
The simplest rules for bond allocation are formulas: "Age in bonds," "100 minus age," "110 minus age." Each is a different rule of thumb, and each makes sense at different life stages. The question is which one fits you, and when to switch between them.
Key takeaways
- Age-in-bonds: Hold a percentage in bonds equal to your age. At 30, hold 30% bonds; at 50, hold 50% bonds.
- 100-minus-age: Hold (100 minus your age) percent in stocks. At 30, hold 70% stocks; at 50, hold 50% stocks.
- 110-minus-age: More aggressive version. At 30, hold 80% stocks; at 50, hold 60% stocks.
- Age-in-bonds is safest but may be too conservative for long-lived retirees. 110-minus-age offers better growth but only works if you can hold equities through crashes.
- Switching between formulas at key life events (marriage, children, promotion, health change) keeps your allocation realistic.
Age-in-bonds formula
The simplest rule: Hold an amount in bonds equal to your age.
- Age 25: 25% bonds, 75% stocks
- Age 35: 35% bonds, 65% stocks
- Age 50: 50% bonds, 50% stocks
- Age 65: 65% bonds, 35% stocks
- Age 75: 75% bonds, 25% stocks
This formula is conservative. It guarantees that as you age, you move toward safety. A 75-year-old on this formula holds only 25% equities, which is appropriate if you have 15 years left and you need the money soon.
The advantage: It's easy to remember. No calculator needed. You always know what to do: your age equals your bond percentage.
The disadvantage: It may be too conservative for people who live into their 90s or beyond. A 65-year-old with a 30-year life expectancy (retiring at 65 and living to 95) probably needs more than 35% equities. Inflation will eat away at a 65% bond portfolio over three decades.
Who should use age-in-bonds? People who are conservative by nature, those with very short life expectancies due to health, or those who have no dependents and no need to pass on wealth. It's the safest of the three formulas.
100-minus-age formula
A more aggressive rule: Hold (100 minus your age) percent in stocks.
- Age 25: 75% stocks, 25% bonds
- Age 35: 65% stocks, 35% bonds
- Age 50: 50% stocks, 50% bonds
- Age 65: 35% stocks, 65% bonds
- Age 75: 25% stocks, 75% bonds
This is mathematically equivalent to "age in bonds" shown a different way, but the mental framing matters. People often prefer to hear "75% stocks" rather than "25% bonds," even though they're the same thing. This formula is middle-ground: less aggressive than 110-minus-age, more aggressive than age-in-bonds (because the math is identical to age-in-bonds, just flipped).
Actually, "100-minus-age" is identical to "age-in-bonds." They're the same rule; one is just inverted. So both formulas are equally conservative.
The advantage: It's also easy to remember and works well through your entire life if you have a typical 30-year working span and a 25-year retirement.
The disadvantage: Same as age-in-bonds—it may leave retirees with too little equity for a long retirement.
110-minus-age formula
The most aggressive: Hold (110 minus your age) percent in stocks.
- Age 25: 85% stocks, 15% bonds
- Age 35: 75% stocks, 25% bonds
- Age 50: 60% stocks, 40% bonds
- Age 65: 45% stocks, 55% bonds
- Age 75: 35% stocks, 65% bonds
This formula keeps equity exposure higher throughout life. At 65, you still hold 45% stocks (vs. 35% in the 100-minus-age formula). Over a 30-year retirement, this extra equity exposure matters: you'll outpace inflation better and likely have more money at the end.
The catch: It only works if you can actually hold those equities through crashes. An 85% equity portfolio at age 25 might fall 40% in a crash. An 85% equity portfolio at age 65 might also fall 35–40%. If you panic-sell at 65 because you're terrified of stocks, the 110-minus-age formula backfires.
Who should use 110-minus-age? People with long life expectancies (healthy family history, good health), high income, and the ability to hold equities through crashes. People in their 20s and 30s with secure jobs often benefit from this rule. People who are risk-averse should not use it.
Comparing the three formulas over a 50-year horizon
Imagine an investor starting at age 25:
Using age-in-bonds:
- Age 25–35: Average allocation 30/70 (bonds/stocks)
- Age 35–50: Average allocation 42.5/57.5
- Age 50–65: Average allocation 57.5/42.5
- Age 65–75: Average allocation 70/30
Average equity over 50 years: about 53%.
Using 100-minus-age (identical to above):
- Same result as age-in-bonds.
Average equity over 50 years: about 53%.
Using 110-minus-age:
- Age 25–35: Average allocation 20/80 (bonds/stocks)
- Age 35–50: Average allocation 32.5/67.5
- Age 50–65: Average allocation 47.5/52.5
- Age 65–75: Average allocation 60/40
Average equity over 50 years: about 60%.
Over 50 years, the extra 7% average equity exposure in the 110-minus-age formula compounds significantly. A $100,000 starting portfolio:
- Age-in-bonds at 53% average equity: ~$4.2 million (at 6% average return)
- 110-minus-age at 60% average equity: ~$5.1 million (at 6.2% average return)
The difference is $900,000 over 50 years. But this assumes you never panic-sell. If you panic-sell in a crash and lock in losses, the 110-minus-age formula loses its advantage entirely.
Switching between formulas
You don't have to pick one formula and hold it for life. You can start aggressive (110-minus-age in your 20s) and shift to conservative (age-in-bonds) as life circumstances change.
Example timeline:
- Age 25–35, healthy, single, stable job: Use 110-minus-age. You're young, confident, and have time. You can afford to hold 80%+ equities.
- Age 35–45, married, two kids, mortgage: Shift to 100-minus-age. You have dependents and less flexibility. A crash that reduces your portfolio by 40% is now painful because you might need money for kids' college or an emergency.
- Age 55–65, pre-retirement, health concerns: Shift to age-in-bonds. You're approaching retirement and you want more stability. You also know your life expectancy is shorter (health has become less certain). Conservative is appropriate.
- Age 65+, retired, long-lived family: Consider shifting back slightly toward 100-minus-age (from pure age-in-bonds). You're retired but you might have 25+ years left. You need equity exposure.
This is not frequent market-timing. This is rational adjustment to life events.
Testing your formula: The crash scenario
For any formula, test it with a crash. If you're 55 and using 110-minus-age (55% equity, 45% bonds):
- Your $500,000 portfolio is allocated $275,000 stocks, $225,000 bonds.
- Stocks fall 40%; bonds fall 5%.
- New value: $165,000 (stocks) + $213,750 (bonds) = $378,750.
- Loss: $121,250 (24.3%).
Can you hold a 24% loss at age 55 with 10 years to retirement? If yes, 110-minus-age is appropriate. If no, shift to 100-minus-age (50/50 at 55, which would lose 22.5%) or age-in-bonds (55/45 at 55, which would lose 22.75%).
The point: Don't just use a formula because it's famous. Test it against your tolerance.
The bond allocation shift at retirement
Many investors shift their allocation at retirement, not gradually before it. This can be wise: it forces a deliberate rebalancing and a moment of thought.
Example: You've been using 110-minus-age until age 65. You're at 45% equity, 55% bonds. You retire. You realize you might live to 95 (30 more years). You shift to 100-minus-age for a 35/65 split. Or you decide to hold 45/55 (a slight compromise) because you need the growth.
The advantage: Deliberate choice, not automatic drift.
The disadvantage: You might overthink it and paralyze yourself. Many people find that locking in a formula and following it automatically is better than constantly re-deciding.
International bonds complicate the math
If you're building a diversified portfolio, you might hold U.S. bonds, international bonds, and equities (U.S. + international). The formulas still apply, but the calculation is broader:
- Age 50 using 100-minus-age: 50% equities, 50% bonds.
- You decide to diversify: 30% U.S. stocks (VTI), 20% international stocks (VXUS), 30% U.S. bonds (BND), 20% international bonds (VWRL or IEMB).
The blended allocation is still 50/50 equities and bonds, but you've diversified each bucket further.
This is fine. The formula still works; you've just added diversification within each category.
Simplifying with target-date funds
If formulas are too much bookkeeping, a target-date fund does the formula calculation internally. You don't pick an age-in-bonds allocation; the fund does. The fund automatically rebalances from 80% equity (when you're young) to 40% equity (when you're near retirement) to 30% equity (when you're in retirement). You set it and forget it.
The cost: A small expense ratio (0.08% at Vanguard, 0.50% at many brokers). The benefit: No mental math, no decisions, no regret.
Related concepts
Next
Age-based formulas provide a framework for allocation, but they're not sacred. Real life events—marriage, children, career changes, health scares—force genuine reassessments of tolerance. The next article explores how tolerance itself evolves as your circumstances shift.