Here's What Happens When You Invest Too Heavily in Stocks During Retirement

You'll often hear that it's a good idea to load up your brokerage account or IRA with stocks during your working years. The stock market has rewarded investors with an average annual 10% return over the past 50 years, as measured by the S&P 500. So going heavy on stocks during your career could help you retire with enough money to meet your goals and then some.

But while it's a good idea to use stocks to help grow wealth for retirement, it's another thing to invest the bulk of your savings in them during retirement. Going this route could mean taking major losses in the event of a stock market downturn.

You need to be careful during retirement

When you're in your 20s, 30s, 40s, and even 50s, you'll often hear that it's smart to go heavy on stocks. The general consensus is that if you're investing for a goal that's at least 10 years away, you're okay to go all-in on stocks because you have time to ride out market downturns.

But once you enter retirement, you might start raiding your portfolio regularly to cover your living expenses. And that's not a bad thing -- it's what that money is for! 

However, what you don't want to do is end up having to cash out investments at a time when their value is down. That could lead to permanent losses in your portfolio. 

And that's why going too heavy on stocks in retirement is risky. The stock market can swing wildly -- we all know that. So if you're in a position where you might have to tap your portfolio at any time, you should have a decent chunk of assets outside of stocks whose value doesn't tend to fluctuate to such extremes. Bonds generally fit this category, and having some cash on hand is a smart bet, too.

How much of your portfolio should you keep in stocks during retirement?

The percentage of assets you keep in stocks as a retiree should hinge on a few different factors. These include:

• Your personal tolerance for risk
• Other income sources you have at your disposal (for example, Social Security, a pension, and earnings from a part-time job)

But some financial experts will tell you that a 50%-50% split between stocks and bonds is a good bet. That way, the stock portion of your portfolio can continue to generate strong returns while you're in retirement, but the bond portion can serve as tappable income in the event of a stock market decline.

Other experts will tell you to use the rule of 110 to determine your optimal stock allocation. That rule has you subtracting your age from 110 to see what portion of your portfolio should be in stocks. 

So if you're 70, you'd aim for a 40% stock allocation. However, you can play around with that number if you have a higher tolerance for risk or other robust income sources to turn to.

You definitely don't want to dump your stock holdings completely during retirement. Doing so could lead to minimal growth in your portfolio during that time, and that's not ideal. But it's also important not to go too heavy on stocks. Rather, aim to strike a balance that works well for you.