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How to Build a Portfolio for 20+ Years of Retirement Income
Key takeaways
- In the drawdown phase the goal is for the portfolio to survive — average return alone is not enough.
- A combination of equities and more defensive assets reduces sequence-of-returns risk in the early years of retirement.
- Glide path = gradually shifting towards more conservative assets as retirement approaches.
- Annual rebalancing maintains both the allocation and discipline.
- A portfolio that is too conservative can fail in the opposite way — through inflation and depletion over the long horizon.
A portfolio for 20+ years of retirement income must simultaneously meet three conditions: generate returns that beat inflation, survive bad years without catastrophic impact, and last longer than you anticipate. None of these goals is free — optimising for one typically complicates the others.
Key Tensions in the Drawdown Phase
Equities beat inflation over the long term, but in a bad run of years they can fall 40–50%. If the downturn occurs at the start of retirement when you are withdrawing, the portfolio may not recover. Bonds protect against downturns, but lose real value in high inflation. There is no perfect allocation — there is an acceptable trade-off for your situation.
Typical Allocation for the Drawdown Phase
A common range is 50–70% equities and 30–50% defensive assets (bonds, cash, short-term deposits). The longer the horizon, the more equities the portfolio can afford — because there is time to recover. The shorter the horizon or the greater the dependence on withdrawals, the larger the cushion in conservative assets.
- 60/40 (equities/bonds) is a historically robust starting point
- For a 40-year horizon, 70/30 or more can be considered
- A cash cushion of 1–2 years of expenses reduces the need to sell equities in a downturn
Rebalancing and Discipline
The portfolio drifts over time — equities grow in good years and their share rises above target. Annual rebalancing returns it to the intended allocation. In the drawdown phase this is simple: withdraw from the asset class that has grown above target, and there is no need to buy anything. The result is a natural realisation of gains.
Connection to Withdrawal Strategies
Asset allocation alone is not enough — you must complement it with a withdrawal strategy. The bucket strategy divides the portfolio into buckets with different time horizons. Dynamic withdrawals (less in downturns, more in growth periods) extend the portfolio's lifespan. And regular projection — see the projection tool on Hřivna — shows where you stand on the journey.
FAQ
What percentage of equities should I hold in retirement?
It depends on age, time horizon, and other income sources. A starting point of 50–70% is often cited. The longer the horizon and the lower the dependence on withdrawals, the more equities the portfolio can carry. A conservative allocation protects against downturns but risks inflation.
What is a glide path?
A gradual shift of the portfolio from riskier to more conservative assets as retirement approaches. Instead of a sudden change, you reduce the equity share progressively over the last 5–10 years. The goal is to limit sequence-of-returns risk at the start of the drawdown phase.
How to rebalance a portfolio in the drawdown phase?
Once a year, check whether the allocation matches the target. In the drawdown phase, withdraw from the asset class that has grown above target — naturally selling what is expensive. No need to buy anything if the withdrawals cover the required correction.
Why aren't bonds alone enough?
Bonds protect against equity downturns, but lose real value in an inflationary environment. A 20+ year horizon is long enough for 3–4% annual inflation to erode purchasing power by a third. Without equities this risk is real.