Asset Allocation Worksheet

It starts from a base mix for your risk tolerance and adjusts it for age and time horizon. The steps are simple enough to check by hand, which is the point: you can see why the target is what it is and decide whether you agree.

1. Base mix. Moderate starts at 45% US stocks, 20% international, 25% bonds, 5% REITs and 5% cash. The other four levels shift weight toward or away from stocks.
2. Age over 50. US stocks fall 10 points (never below 20%), international 5 (never below 5%), bonds rise 12 (never above 60%) and cash 3 (never above 15%).
3. Horizon under 5 years. A further, much larger move to bonds and cash, meant for money you will spend soon.
4. Scale and round. The result is scaled to 100% and each class rounded to a whole percent, with any rounding difference added to the largest class so the targets total exactly 100%.

With the defaults, a 62-year-old with a moderate risk tolerance and a 28-year horizon gets 35% US stocks, 15% international, 37% bonds, 5% REITs and 8% cash: 50% in stocks. Against $1,600,000 held as $720,000 US stocks, $200,000 international, $480,000 bonds, $60,000 REITs and $140,000 cash, US stocks are 10 points over target, so the alignment score is 80 out of 100 and the worksheet suggests selling $160,000 of US stocks and $12,000 of cash, and buying $40,000 international, $112,000 bonds and $20,000 REITs.

Less than at 40, but rarely none, because the money may have to last 25 or 30 years and keep up with prices the whole way. The classic rules give quite different answers:

The worksheet holds the same mix from 51 onward, so choose the risk level with your age and circumstances in mind. Three questions matter more than the birthday:

• How much of your spending does guaranteed income cover? A couple whose Social Security and pensions pay 80% of the bills can hold more stocks than one drawing 5% a year from the portfolio.
• Who is the money really for? Money that will pass to children or grandchildren has their horizon, not yours. Many retirees mentally split the portfolio: a conservative part for the next ten years of spending and a growth part for later and for heirs.
• What did you do in 2008 and 2020? If you sold near the bottom, choose a lower risk level. The best mix is one you will hold.

The guide to asset allocation from 55 to 75 walks through these choices in more depth, including the case for holding more bonds in the years just before and after retiring.

Yes, although the worksheet leaves that judgment to you. A pension paying $2,400 a month behaves much like a large, inflation-sensitive bond: it arrives in every market. A retiree who has one is less exposed to a stock market fall than a retiree with the same portfolio and no pension, because fewer bills depend on selling shares.

The practical rule: do not add a value for Social Security or a pension to the bond line, which would make the worksheet recommend buying more stocks than most people can live with. Instead, move up one risk level if guaranteed income covers most of your spending, and down one if the portfolio pays most of it. The human capital calculator applies the same thinking to the salary or consulting income you still expect to earn, and the guide to pension lump sums and annuities covers the case where you have to choose.

Do the selling inside tax-deferred accounts and let cash flows do the work in taxable ones. The order that keeps tax lowest:

1. Trade inside IRAs, 401(k)s and Roth accounts. Sales there are not taxed. If your overweight class is held in a 401(k), one exchange inside the plan often fixes the whole drift.
2. Withdraw from what is overweight. Take this year's spending money, and required minimum distributions once they start (age 73, or 75 if born in 1960 or later), from the class that has grown past its target. The RMD calculator projects those amounts.
3. Redirect dividends and interest to cash or to the underweight class instead of reinvesting them.
4. Give appreciated shares, not cash. Donating shares held more than a year avoids tax on the gain; after 70½, a qualified charitable distribution of up to $111,000 a year from an IRA can replace cash gifts.
5. Sell in the taxable account last. Gains on shares held more than a year are taxed at 0%, 15% or 20% depending on taxable income (IRS Topic 409). In a year with little other income, some or all of the gain may fall in the 0% bracket.

One trap catches careful people. If you sell a fund at a loss in a taxable account and buy the same fund in your IRA or Roth IRA within 30 days, the loss is disallowed, and unlike an ordinary wash sale it is not added to the basis of the new shares (IRS Rev. Rul. 2008-5). Wait 31 days or buy a different fund.

Once the overall mix is right, where each piece sits can lower lifetime taxes. The worksheet treats all accounts as one pot; this is the second step.

The last point matters for anyone planning a legacy. Heirs' basis in inherited property is generally its fair market value at the date of death (IRS Publication 551), so a fund bought decades ago for a fraction of its value can pass without the gain ever being taxed. That is a strong reason to rebalance elsewhere and leave the oldest taxable shares alone. For drawing the accounts down in the right order, see the guide to retirement withdrawal order; for shrinking the traditional IRA before RMDs, the guide to Roth conversions.

• Taxes and costs. Trades are shown before tax. Check which account holds what before you act; the portfolio tracker does that by account.
• Income sources. Social Security, pensions and annuities are not counted; adjust the risk level instead.
• Finer age steps. Everyone over 50 gets the same adjustment. It is a starting point, not a glide path.
• Bond quality and length. Short Treasuries and long corporate bonds both count as bonds. For money you will spend within five years, shorter and higher-quality is safer; the bond duration and yield calculator shows how much more a long bond moves when rates change.

The worksheet and its Excel version are free and educational. Our free newsletter sends new calculators, guides and worked examples when they are published.