What percent of my portfolio should in invested in my retirement?

[Goldy]

What do you guys and gals think a good percentage is for your net worth to be tied up in retiremt would be? I excluded my home equity for this and based it soley on investments/cash and came up with 77% for us. At first I was shocked at how high it was but I am planning to live off this nest egg for 30 years so maybe its OK. Thoughts?

[disneysteve]

You should be saving at least 15% of your gross annual income for retirement. Assuming you do that for many years, that will certainly become a very large part of your net worth, larger than anything else including your home most likely.

[MonkeyMama]

I think this is very arbitrary and highly individual.

Arbitrary, especially for younger folks. The mix might not mean much of anything, very early on.

I think most important are two things: If you want to retire early, you need to make sure you can access some of your accounts earlier. You also don't want to shelter so much in retirement accounts that you can't make shorter term obligations.

Maybe make it three: Utilizing retirement and other tax-deferred accounts is usually largely a tax decision. But, tax decisions have to fit in with your other needs and goals.

Incidentally, we do have 75% of our investments tied up in retirement accounts. This doesn't mean a lot to me. Most of it is in ROTHs, so I don't particularly look at it is "tied up until traditional retirement age." (Can access a lot of it today, without taxes or penalty). There is also not a lot I can do to change this mix. We max out our retirement contributions, annually. So it's not like I can decide to just save 100% of our annual savings to retirement, tomorrow, if I feel we have everything else well covered.

At current, other investments are set aside for shorter term obligations (things like college, and replacing our cars). Really rather short-term type stuff. Eventually we will be saving more for retirement outside of "retirement accounts." I'd expect to eventually have a lot saved "for retirement" that is not "tied up in retirement accounts."

As we change jobs and are offered other retirement savings vehicles, we would just have to re-evaluate at that point.

[disneysteve]

I was at work when I replied earlier so I didn't have my numbers in front of me. We have at least 70% of our portfolio either in actual retirement accounts or taxable accounts that are earmarked for retirement. The real number if probably closer to yours as I left out some things that I'm pretty sure will end up being retirement money. I have no other intended goal or use for those funds.

[bUU]

Some of the advice I've seen recently indicates you should be aiming for 97% or more. This is a combination of the advice to keep 6 to 12 months of expenses in an emergency fund, and the advice to have 35x current expenses available at the time you start a possibly 35 year retirement. Hmph... that ain't gonna happen in our house.

[BuckyBadger]

I feel like you already asked this question? Or maybe it was someone else.

Anyway, since we are not saving for anything particularly large right now (no need to be saving for, say, college for a kid or a down payment for a house at this point since we already own and have $100k in equity) everything that isn't emergency fund or short term savings is invested for retirement.

90% of our retirement savings are in retirement accounts (two 401ks, two Roth IRAs) and only 10% of our retirement savings are in taxable accounts. We are lucky enough to have lots of tax advantaged space so we only add about $10k to the taxable account on top of that every year, and we've only been doing it for a few years now.

All our other money is about $35k that is earmarked for an emergency fund, short term liquid savings for things like vacations and big purchases, and normal monthly operating expenses for the household.

If we have kids, we will open a separate college savings fund but that money will not be included in retirement calculations. Three years or so before we plan on needing a new car we will start saving for that.

(ETA so if everything we have is in retirement except for $35k, then technically 90% of our money is in retirement accounts. Is this what you were looking for?)

[MonkeyMama]

I think these 90%+ figures make sense. I couldn't help but think once my kids are done with college that we wouldn't really have much in savings that wasn't for retirement. PLUS, long-term retirement investments should be growing more rapidly than short-term cash type savings.

[feh]

What do you guys and gals think a good percentage is for your net worth to be tied up in retiremt would be? I excluded my home equity for this and based it soley on investments/cash and came up with 77% for us. At first I was shocked at how high it was but I am planning to live off this nest egg for 30 years so maybe its OK. Thoughts?

Depends on what you mean by "tied up in retirement". Are you talking about IRAs and 401Ks only?

Half of our investments are in a taxable account, but it's all earmarked for retirement. If I include our taxable account and exclude our house/possessions, probably 99% of our net worth is in retirement accounts.

[sherylgray]

You should aim for long-term investment returns. Many financial professionals suggest a balanced portfolio of stocks, bonds, mutual funds, and cash equivalents. The percentage of each will depend on your risk tolerance, your age, your needs, and other factors.

[kork13]

As others have said, if you're doing it right, a significant chunk of your money will be held in retirement accounts. As you get older, retirement accounts will probably be the VAST majority of your money.

Perhaps a scenario will help: By the time you retire, what are you aiming for? For easy numbers, let's say you want a 1-yr EF in cash, 30-yr Retirement in investments, plus some money in taxable investments as well. So let's say you have a $50k cash EF, $100k in taxable investments, and $1.5M in retirement accounts. In that situation, you will end up with 91% of your total monetary assets in retirement. So a high proportion is normal.

With a quick check of my own numbers, I've got about 54% of my money in retirement accounts right now, and I'm only 27. Over time, that percentage will only continue to grow toward that 90%+ range.

Also, don't fret terribly about it being "locked up" in retirement. If you have Roth accounts, your contributions can be accessed if critically necessary, without penalty. The money is all still yours, there's just the delay in your use of it....which you'll appreciate when you're 80+ years old.

[bennkar]

I agree with others... the percentage isn't that important. It matters is if you will need money before retirement, can you access enough of it. For me, which certainly won't apply to most people, I will be able to access probably 85% of my retirement accounts immediately penalty free when I leave my current job. This is due to the majority of my money being in either Roth IRA or 457 accounts. So for me there isn't a big need to save outside of retirement accounts. That said, my retirement accounts probably are ~90% of my overall savings.

[Mesem]

Just remember it is better to over-invest than to under-invest for retirement.

[LivingAlmostLarge]

I'd say like 75% in retirement. That's where our main savings is going and we're young. We haven't had time to build our other savings.

[fortiva]

An old rule of thumb is that your stock allocation percentage should be 100 minus your age. That is, a 30-year old should have 70% stocks/30% bonds, and a 70-year old should have 30% stocks/70% bonds. This was not just taken out of thin air, and has a basis from historical returns. As you near retirement, you want to have more bonds as that reduces overall volatility.

[bUU]

An old rule of thumb is that your stock allocation percentage should be 100 minus your age.

Emphasis on the word "old". As you indicated, it is based strictly on historical data and doesn't factor in any of the well-understood, durable changes in the marketplace, nor factors in how now new-but-long-standing monetary policy, such as qualitative easing, renders reliance strictly on historical data invalid. For more accurate insights into this decision, it is necessary to rely on data that resembles today's environment closely. In considering the impact of an allocation toward bonds in your portfolio, it is essential to understand that allocation in the context of today's market, not that of last decade or the decade before. Specifically, you need to go back to 1950 to see the impact on bonds (and from that intuit the impact on bond funds) over the next twenty or thirty years.

For folks age 30, it may not matter. So much will change between "now and then" that we really have no idea what to do, except that we know that historical approaches no longer have validity. For folks nearing retirement, we know that the old yarns like "100 minus your age" are invalid, and that the insights from the bond market of the 1950s will better inform us about the bond market of the 2020s.

Most independent experts today are aiming folks in their 50s to asset allocations that include at least 70% equities, and in many cases keeping equities around 80% through the first decade of retirement. Remember: Unlike in the past, where the average person lived about ten years into retirement, many of us can expect to live four times as long in retirement, so while a part of your retirement savings are intended for relatively short-term use (i.e., over the next ten or fifteen years), a large portion of your retirement savings, when you enter retirement, is intended to be used thirty years hence.