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If You're in the 2% Club and Have a Pension, the 60/40 Portfolio Could Hold You Back

The guaranteed income from your pension, savings and Social Security could already provide the protection that bonds usually offer, freeing you up to adopt a more growth-oriented allocation.

By Joe F. Schmitz Jr., CFP®, ChFC®, CKA® published 16 January 2026 in Features

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A couple work together on financial planning at their kitchen table.

(Image credit: Getty Images)

For years, the 60/40 portfolio has been the go-to allocation for many retirees.

Sixty percent stocks and forty percent bonds is said to be the safe and reliable mix, but for retirees who have a pension and strong savings, this traditional retirement rule may not fit their situation.

If this sounds like your situation, you are part of a very small group of Americans that we like to call the 2% Club. Less than 20% of Americans have a pension, and about 10% have saved a million dollars or more.

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When you put those two together, you create a unique group of retirees who have both a high income and a high net worth throughout their retirement.

And when you're in the 2% Club, the rules change — I wrote a bestselling book about it (you can request a free copy here).

Your pension reduces the pressure on your portfolio

For many retirees, their pension can provide a value equivalent to hundreds of thousands to millions of dollars over their lifetime, and it takes on a similar role that bonds usually play in a portfolio, such as:

Reducing volatility
Providing predictable income
Lowering sequence of returns risk

If a retiree's pension and Social Security already cover most of their day-to-day living expenses, their portfolio may not need to do the same job.

This often means that the "right" allocation is not 60/40 at all. It might be 80/20, 90/10 or even more growth-oriented, depending on the situation.

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The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Understanding sequence of returns risk (and why it's different for pension holders)

Sequence of returns risk is the danger of needing to withdraw money during a market downturn. This can create what is known as a "double loss" and can be a serious threat to retirees who rely heavily on their investments to meet daily expenses.

But for pension holders who need a much smaller draw from their investments, this risk shrinks dramatically.

An example: A retiree needs $120,000 a year, and they get a combined $80,000 in guaranteed income from their pension and Social Security benefits. This leaves them needing only $40,000 from their investments.

If they have a $2 million nest egg, that's only a 2% withdrawal rate, far below usual sustainability guidelines, which means their portfolio doesn't need the traditional 40% allocated to bonds. It may only need enough protection to cover multiple years of modest withdrawals.

How much should you really protect?

There are two main factors to determine how much protection a retiree may need:

1. Income needs

No income needs → You may need none of your investments protected. Small income needs → You could think about protecting only five to 10 years of withdrawals.

With the example above, five years of withdrawing $40,000 equals $200,000, and 10 years of withdrawals is only $400,000.

In a $2 million portfolio, that means:

$200,000 protected → 90/10 allocation
$400,000 protected → 80/20 allocation

Not 60/40.

2. Risk tolerance

Some people just simply aren't comfortable with the ups and downs of the market, while others may be perfectly fine seeing the market drop 20%, knowing that history shows recovery.

But pensions give retirees something most people don't have: The freedom to choose their risk level.

How often is the market down over the past 50 years?

Looking at the past 50 years of market data, according to IFA.com:

Daily: 51% up/49% down (essentially a coin flip)
Monthly: 65% probability of gains
Quarterly: 71% probability of gains
One year: 79% probability of gains
Five years: 97% probability of gains
10 years: 100% probability of gains

This is why many pension-holding retirees protect only five to 10 years of income. History shows that a long time horizon eliminates risk of withdrawing during a market downturn.

Why taking on more risk can actually increase your options in retirement

No one wants risk. If we could get 10% returns with no volatility, everyone would choose that. But the reality is that more risk equals more potential for returns. If retirees overweight protection unnecessarily, they risk leaving a lot of long-term growth on the table.

The math is striking:

At 7%: Money doubles roughly every 10 years
At 4%: It takes almost 20 years

What does that look like over a 20-year period?

At 7%: $400,000 → $800,000 in 10 years → $1.6 million in 20 years
At 4%: $400,000 → $800,000 in about 20 years

That's a potential $800,000 difference in long-term outcomes. Will everyone with a pension need that extra $800,000? Maybe not. But it could fund charitable gifts, family legacy goals or simply provide the financial flexibility retirees worked decades to earn.

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Or maybe they could spend some of that money, which is a very difficult task for our Midwestern Millionaire clients who are very frugal. 🙂 They are what we call "the best savers and the worst spenders."

This type of planning could make them feel more comfortable doing what they want, knowing they have even more financial freedom than before.

The bottom line: Your retirement should dictate the allocation, not the other way around

If you are retired with a pension and have seven figures saved, you are not a "standard" retiree, and you don't need a "standard" portfolio. Your pension already accomplishes part of what bonds traditionally do.

This flexibility opens the door to:

Higher growth potential
More control
Ability to create more long-term wealth
Less stress about what the stock market is doing

If you're part of the 2% Club, take the time to design a portfolio that fits your goals, income needs and risk tolerance, and don't follow an outdated rule of thumb.

Here's What Being in the 2% Club Means for Your Retirement
Five Opportunities if You're in the 2% Club in Retirement
Are You a 'Midwestern Millionaire'? Four Retirement Strategies
The $1 Million Retirement Question: Are You Being Tax-Smart About Your Pension?
Now Could Be the Best Tax-Planning Window We've Had: 12 Things You Should Know

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®Social Links NavigationFounder and CEO, Peak Retirement Planning

Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.