The common rule of thumb for asset allocation between stocks and bonds in retirement accounts—that your age represents the percentage of bonds you should have in your retirement investment portfolio—overlooks an important bond component. Social Security, guaranteed annuity payments and fixed pensions can be equated to bonds in a portfolio.

A bond pays a periodic fixed sum of money according to the terms of the issuer. This sum represents interest to the holder of the bond—payment in return for lending the capital to the issuer.

In cases where a retiree is drawing a fixed pension from an employer of a state system such as the State Teachers Retirement System or Public Employees Retirement System, the bond equivalent portion of his/her overall retirement portfolio will be even greater, implying that greater exposure to equities might be warranted.

This type of retirement income planning should be modified to meet individual investment and retirement considerations.

If the retiree had been planning to derive retirement income annually from the investment portfolio, the investment horizon for a portion of the account would be shorter and less able to be invested in risky assets, resulting in fewer equity and more bond or Treasury components in the portfolio.

Even with a longer investment horizon, a personal intolerance for risk dictates fewer equities and more bonds in a portfolio. There’s no sense in being retired and worrying about the stock market, no matter how far in the future you plan to spend the money!

Additionally, a retiree who anticipates needing large sums of money for future major purchases, anticipated medical expenses, paying for a grandchild’s education, etc., may wish to reduce equity exposure in his/her portfolio.

Last but not least, a retiree carrying larger amounts of consumer debt should weigh carefully the wisdom of being invested heavily in equities. Once the paychecks stop, earning one’s way out of debt is no longer an option. If the fixed, or bond, portion of the portfolio can generate enough income to pay the debt, then it should be carefully invested to maintain that future earning power with as little risk to the principal as possible.