Drew Pelton is President and Senior Financial Advisor for Tax & Retirement Solutions LLC in Baton Rouge, Louisiana, which provides clients with proprietary solutions designed to help them meet and exceed their financial goals and objectives. A noted speaker on financial topics, Drew Pelton draws on his extensive experience and expertise to make complicated topics easy to understand.
The Rule of 100 is a long-held approach to investments used to simplify asset allocation as a client grows older. As individuals approach retirement, they typically aim to reduce the amount of aggressive investments within their portfolio, favoring more conservative outlets.
The Rule of 100 acts as a guideline for pre-retired or retired investors, suggesting the investor may want to re-allocate stock and or stock funds to more conservative investments based on the formula of subtracting one’s age from the number 100, where the result is a percentage number. So, according to the guideline, a 65-year-old would invest only 35 percent in investments at risk (such as stocks and or stock funds), and the remaining 65 percent in more conservative investments. The formula example is, 100–65 (age) = 35% (the guideline percentage maximum to have in investments at risk).
Today, financial advisors are increasingly aware of the strain of longer lifespans and increased medical expenses placed on a retirement portfolio. As people live longer, additional funds are required, leading many advisors to recommend higher percentages of one’s money in riskier investments not in alignment with the Rule (Guideline) of 100. To that end, and although trends within the industry point to a guideline of designating a percentage of 110 or 120 minus a client’s age where there is greater risk, retirees can participate in programs and financial products that both minimize risk and provide adequate Total Return (income and growth) from expertly designed portfolios. Drew Pelton’s company provides these state of the art plan designs and programs.
Though age-based allocations serve as a helpful starting point, many other factors need to be considered, including an individual’s risk tolerance, the age he or she wishes to retire, estate planning goals, and the amount of assets needed to sustain a certain type of lifestyle throughout retirement. An experienced, qualified financial advisor is essential as individuals and couples sort through the many factors affecting their retirement portfolio.