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As you get older, it’s important to gradually shift your investment strategy. No matter what your long-term savings goals are, it’s smart to move some of your money out of riskier investments as you approach your targets. One popular model for this is the 100-minus-age rule, where you subtract your age from 100 to figure out how much to have in stocks. But lately, experts have been recommending the 120-minus-age rule instead, which leaves you with a slightly higher stock allocation. So if you’re 40, you’d want 80% of your portfolio in stocks.
Keeping a higher percentage of your investments in stocks means you’re more vulnerable to market swings. So it might be wise to be a bit more conservative when you reach retirement age. But this approach also gives your money more time to potentially grow. It’s generally recommended to have 3 times your annual salary saved by age 40, but the typical 35-44 year old only has around $45,000 to $141,000 saved – less than the target for someone making the 2025 median income.
Why the 120-minus-age rule works for retirement planning
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The 120-minus-age approach gives you a higher growth potential throughout your investing journey. Most people start working in their late teens or early 20s, which by this rule’s standards means having an almost 100% stock allocation. This strategy also teaches an important lesson about rebalancing – starting with mainly stocks in your 20s and gradually shifting to more stable assets as you get older lets you limit slow-growing defensive investments while giving yourself time to recover from any riskier moves that don’t pan out.
People tend to hit their peak earning years between their late 40s and early 50s. At that point, many savers will naturally want to focus more on protecting what they’ve built up, which aligns perfectly with the 120-minus-age model. Investors who follow this rule will spend around 20 years prioritizing growth, then 20 more gradually becoming more conservative. This can help preserve wealth while also accounting for longer lifespans increasing savings needs.
The numbers back up this approach too – reports show investors using the 120-minus-age rule get almost 1% higher annual returns than those using the 100-minus-age method.
