I recently spoke with a retired couple seeking advice about their investment portfolio and whether a 65% allocation in stocks was excessive for their circumstances. Here, I will outline some factors to consider when evaluating asset allocation.

To start, it’s essential to understand your monthly expenses. List all the regular costs that you incur, including housing, food, healthcare, insurance, clothing, charitable donations, and taxes. After that, account for discretionary expenses like travel, entertainment, and significant purchases.

If you are collaborating with a financial advisor, they can utilize this information to project your lifetime spending requirements. If you are taking control of your finances, a general estimation can be done by applying the 4% rule in reverse. For instance, if you plan to spend $50,000 annually, you should aim for a portfolio of at least $1.4 million. This figure is derived by multiplying the planned annual spending by 28.6, which is the reciprocal of the withdrawal percentage at 3.5%.

The next step is to consider asset allocation for these crucial assets.

**Scenario 1: Legacy Emphasis**
If your primary goal is to leave assets as inheritances to either charities or family members, you may be more inclined toward a higher stock allocation. This strategy could enable ongoing growth of your assets while they remain in the portfolio.

**Scenario 2: Asset Protection Focus**
On the other hand, if you are more concerned about preserving your capital rather than growing it for future bequests, a greater emphasis on safety may be advisable. This could lead you to allocate a portion of your extra investments toward bonds.

These two scenarios can serve as a foundation for your decision-making process. The couple may find themselves in a middle ground where they create a more balanced portfolio. They could also consider setting aside distinct funds for specific purposes, like separate reserves for charitable giving during their lifetime or a “fun money” category to enjoy after years of working and saving.

**Additional Factors**
For those investors open to a higher stock allocation, it’s wise to reduce the proportion of any individual stocks that are excessively valued or make up a large share of the portfolio. A rough guideline suggests a threshold of around 5%.

Another important aspect to consider is the risk tolerance of each spouse involved. It’s crucial to assess whether both partners share a similar comfort level with their investment strategy. Contemplate how the surviving spouse may manage the remaining assets in the event of one partner’s passing, and ensure that the chosen asset mix aligns with both individuals’ long-term comfort and security.

In summary, there is no one-size-fits-all approach when it comes to creating an asset allocation strategy. The best course of action is dictated by factors like individual risk tolerance, portfolio size, and expected spending. However, retirees who have sufficient assets to meet their expected expenses—and even beyond—can enjoy greater flexibility in crafting a personalized asset distribution that resonates with their objectives and values.