Does The Rule of 100 Work in Retirement?

A rule of thumb around risk is the “Rule of 100.”  If you haven’t heard of this rule before, we’ll outline everything for you below so that you have a better understanding of it. Keep in mind that risk in investing is somewhat subjective, and needs to be discussed on a case-by-case basis.

We have people ask, “What is my risk based on my age?” And this isn’t something that we really recommend. The “Rule of 100” is the rule of risk based on age.

What in the World is the “Rule of 100?”

The Rule of 100 takes your age and subtracts it to help you determine how much risk you can take when investing. For example, let’s assume that you’re 50. The equation would be: 100 – 50 = 50.

In this case, “50” is how much risk you can take.

So, based on this figure, you should keep 50% of your money at risk. If you’re like many 50-year-olds who feel like they have plenty of years left, it doesn’t make sense to stop 50% of your money from its growth potential. You can still have good risk control and keep this 50% of your money growing with relatively little risk.

Now, imagine you hit 70. You take 100 – 70 = 30, so 30% of your money can be at risk and in the market. For some people, this formula works well, but there are many people who want more risk.

You can have two people who earn the same money, accrued the same debts, and are the same age but have different risk tolerance based on their individual situations. One person may be fine with 4% growth per year, while another wants to achieve 12% growth and invest in riskier investments because they want to pay for their grandkids’ education.

What’s right for you?

We’ve adopted our own method of risk calculation that looks at the bigger picture to help you better understand your goals and what risks you must take to reach them.

Walking Through Our Conversation on Risk with Our Clients

Retirement planning is truly unique to each person. You may want to travel the world, while another person wants to spend their golden years tending to their garden. The goals and aspirations that you have for life in retirement must, in our belief, be a major contributing factor to your risk tolerance.

Our system is numerically driven and asks:

  • How do you feel about risk in a six-month window?
  • Say you have $1 million and lose 10%. Are you comfortable losing $100,000 in six months?

Many people believe that they’re comfortable with losing 10% of their investments until they see the hard figure in front of them. Let’s walk through an example of how we help our clients understand and determine their risks.

$1 million Retirement Roleplay

In this example, Radon has $1 million and has just walked into our office. 


Radon, you have $1 million to work with. We want to set you up for your retirement. We want to take risks and earn you money, but we want to create a portfolio that allows you to sleep well at night. We need to understand what that number is for you because everyone is different. 

If you look at the screen, Radon, we’ve put your million dollars here and have a slide rule in place that allows us to adjust your investment risks.

The slide starts in the middle here, and the middle is 14%. At this percentage, you have a risk of losing $140,000, but you can also have a nice gain, too.

Radon, I am going to move the slide all the way to the left, which is –4%, or $40,000. What I want you to do is, as I start moving the slider to the right, tell me where you think you feel uncomfortable with your losses.

We’re at 7%, or around $68,000 of loss. We’re now at 10%, or a $100,000 loss.”


What we find happens during this example is that the client starts to talk to themselves. For example, they may say that they didn’t feel good about losing 20% in 2022. The person then weighs their risk on what happened last year.

We recommend trying to look forward because the losses last year may never happen again. We often see clients tend to stop at 10% because losing $100,000 is tough to swallow. However, most people realize they need to let the market breathe a bit and can sleep at night with a 10% loss.

We’ve established our baseline at 10% because that’s our initial gut reaction, where we become uncomfortable with any further losses. The screen that is in front of the client will have the 10% in the middle and then have numbers on the left and right, which show lower and higher risk figures.

Now, let’s get back to our example discussion from above.


Radon, during this discussion, determines that he’s comfortable with a 10% loss on his $1 million, and this is the figure he doesn’t want to pass. 


Radon, you told me 10% on the downside is your limit, but what if we can improve that? Let me tell you. It’s different for different families. 

  • One person may receive the same reward of 10% while only having a 6% loss potential, or $60,000. This would be the left side.
  • One person may be comfortable with a 10% loss, but what if I can increase my gain potential to 16%? This would be the right side.

Radon, what looks better to you?


In this case, I think I am comfortable with the risk. I feel confident with a 10% risk, and if I had more reward, I would move to the right.


This exercise is thought-provoking because some people are comfortable with going to the right to have more reward, but others find it a no-brainer to lower their risk.

Keep in mind that Radon wouldn’t mind earning a little more at 10% risk. The software shows us that we can stay where we are at –10% downside, or we can go 16% – 19% growth. However, this would mean a 12% risk, or $120,000 potential loss.


Radon, which one looks better to you? Would you like to stay in the middle or take a little more risk for a lot more potential?


The rationale that I’m looking at right now is that I get quite a bit more upside for a little more risk, which is kind of in my comfortable range. Again, I am kind of nervous, but I think I can take it a little higher to make up for some of the losses in 2022. I don’t want to miss out on the potential that’s coming.

Let’s take it up one notch and see what happens.


Great. Pushing it up one notch, we’ve moved from a –10% to a –12% comfort level. Now, the last one is, what if we can earn better by going to –14% downside in a 6-month window?


I was already pushing it with the 12% risk, so I think I feel most comfortable staying in this range and not pushing my downside any higher.

Summing Up

These few questions and scenarios show a client the hard figures, which makes it possible to really identify their risk tolerance and the losses they feel most comfortable with in their portfolios.

Using these figures, we can create an investment plan that is within a risk category and create a growth plan that doesn’t exceed the client’s risk tolerance.

We will then use our bucket strategy to allocate all the clients’ funds to help them achieve the growth they want from their retirement accounts. The three buckets include: cash, income and safety, and then a growth bucket.

Risk tolerance allows us to create a one-page investment strategy that we give to our clients that helps them understand exactly how their portfolio will look.

We find that using this type of risk tolerance assessment works much better than saying a “moderately conservative” plan that may be losses of 10% or 20%. Moderately conservative is a subjective term, and we take the subjectiveness out of the equation with the assessment we create.

Click here to schedule a call with us to help you better understand your retirement risk tolerance.