Stocks vs. bonds in retirement: choosing a mix and what it does to your plan

The Stock / bond mix is one of the five Market Assumptions in Runway, and of everything on that step it moves the results the most. It is also the one with the least settled answer. Here is what the research says, what Runway's engine finds for the sample couple at five different mixes, and an uncomfortable feature of the results: the two methods Runway uses disagree about which mix is best.

What does the research say?

Bengen's 1994 article in the Journal of Financial Planning (reprinted in the Journal's "Best of 25 Years" series) tested withdrawal rates against historical U.S. returns at different stock allocations. His advice to planners: "accept a stock allocation as close to 75 percent as possible, and in no cases less than 50 percent. Stock allocations lower than 50 percent are counterproductive." He found that more than 75% stocks was also counterproductive: accumulated wealth kept rising, but the portfolio's longevity in the worst years, like the Depression, deteriorated.

A different question is whether the allocation should stay fixed. Wade Pfau and Michael Kitces ("Reducing Retirement Risk with a Rising Equity Glide Path," Journal of Financial Planning, January 2014) tested 121 glide paths across 10,000 Monte Carlo simulations and found that portfolios that start at 20% to 40% in equities and rise to 60% to 80% generally performed better than static or declining ones. Both studies are historical or simulated, they use their own assumptions, and neither is a guarantee. They are useful because they point at the same trade-off Runway shows below.

What does Runway's Monte Carlo show?

For the sample couple Runway loads (Pat 65, Alex 64, $1.46 million, plan through 95), here are 2,000 simulated markets at five stock shares, using Runway's defaults: stocks 7.5% and bonds 3.5% a year after inflation, with 16% and 6% volatility. The columns show the unlucky (10th percentile), median and lucky (90th percentile) ending balances.

Two things stand out. The median ending balance rises with every step toward stocks, nearly doubling from 20% to 100%, and so does the 90th percentile, from $1.6 million to $5.9 million. But the bad case, the 10th percentile, peaks at 40% stocks and then falls: at 100% it is $284,483, less than half of the 40% figure. And the chance the money lasts is highest at the conservative end. When spending is tighter against the portfolio, the shape is the same but the stakes are larger:

At $110,000 a year, the best odds of lasting are at 40% stocks (89.0%), with 60% close behind (87.0%), and both very low and very high stock shares do worse. That is the sequence-of-returns problem in numbers: a portfolio with more stocks is more likely to leave you a lot, and also more likely to run out (why the first decade matters most).

What does the historical replay show?

Runway's Historical Backtest starts the same plan in every real year from 1872 and runs it for 30 years on actual U.S. stock and bond returns. The picture is different:

In the replay, more stocks is better at every step at $110,000: 47.2% of starting years succeed with 20% stocks and 82.4% with 100%. This disagrees with the Monte Carlo result, in which 100% stocks was the worst. The reason is what each method assumes. Runway's Monte Carlo uses a 7.5% real return for stocks and 3.5% for bonds, a gap of 4 points. In the historical data (1872 to 2025), U.S. stocks averaged 8.6% a year after inflation and bonds 2.8%, a gap of nearly 6 points, and bonds actually lost money in real terms from 1940 through 1981, at an average of -1.7% a year. A 30-year replay therefore rewards stocks more than the simulation does. If you believe the future looks like the past, the replay is the better guide; if you expect returns to be lower than they have been, the simulation is. Neither is the "right" one, which is the point: how much stock you hold depends on a forecast nobody can make.

So what mix should I choose?

• The middle holds up. At 60% stocks, the plan was near the top of both tests at $95,000 and in the upper range at $110,000. That matches Bengen's 50% to 75% zone and is Runway's default.
• The extremes carry the risk. 20% stocks was the worst in the replay at $110,000. 100% stocks was the worst in the simulation, with a bad-case ending balance a fraction of the 40% one.
• What you can sit through matters more than the optimum. A portfolio you hold through a 30% fall beats a better one you sell at the bottom.
• It interacts with spending. The riskier your spending target relative to your assets, the more your mix matters. See how much you can safely spend.

What does this leave out?

• One fixed mix. Runway holds your chosen allocation the whole way, with no glide path and no rebalancing frictions. The Pfau and Kitces glide-path research isn't modeled.
• Two asset classes only. Stocks and bonds; no international stocks, real estate, TIPS or small-cap tilts, and one set of return assumptions for the whole portfolio.
• All accounts share the mix. The engine applies the same blended return to every investment account. Real portfolios often hold bonds in tax-deferred accounts and stocks in Roth accounts.
• Taxes on dividends and gains inside taxable accounts are modeled through the withdrawal plan, but not as an ongoing drag on returns.
• History is one sample. The U.S. in 1872 to 2025 is a successful market; other countries did worse.

How were these numbers computed?

The Monte Carlo uses 2,000 simulated paths and seed 2026, with stocks at 7.5% a year after inflation (about 10.2% before it, with inflation at 2.5%), bonds at 3.5% (about 6.1%), volatility of 16% and 6%, and a correlation of -0.10. The historical backtest uses annual real, dividend-reinvested total returns for U.S. stocks and 10-year bonds from Robert Shiller's public dataset, in 125 starting years from 1872 through 1996, each running 30 years. Both methods use the sample couple, married filing jointly, plan through age 95, with the long-term-care cost left out. Amounts are in today's dollars.