Warren Buffett's Favorite Investing Rule Could Be Too Risky for Some Retirees - Here's Why

Warren Buffett's famous 90/10 investing rule is appealing because of its simplicity: Put 90% of a portfolio in a low-cost S&P 500 index fund and the remaining 10% in short-term U.S. government bonds.

The strategy can help investors stay focused on long-term growth, but retirees trying to save money in retirement have to think about timing. A major market decline during the first few years of withdrawals may permanently weaken a portfolio, even if stocks eventually recover.

The first five years of retirement can matter most

This combination is known as sequence-of-returns risk, which occurs when poor investment returns coincide with withdrawals from a portfolio.

Research found that nearly 70% of failed simulations in which retirees ran out of money involved portfolios that had already lost value by the end of year five. The risk was particularly acute for portfolios heavily concentrated in stocks because of their greater volatility.

That makes Buffett's 90% stock allocation worth examining differently for someone retiring at 65 than for someone still accumulating investments at 45. A younger investor can usually wait through a bear market and continue buying shares. A retiree may need to sell those shares to cover everyday expenses.

Retiring before the 2008 crash shows the danger

Consider someone retiring with $500,000 just before the financial crisis and following Buffett's 90/10 approach.

Around $450,000 would be invested in the S&P 500. The index lost roughly 37% in 2008 on a total-return basis, meaning that the stock portion alone could have lost around $166,500 over the year before accounting for any return from the $50,000 held in short-term government bonds.

A historical backtest of a Buffett-style 90/10 portfolio estimates that the allocation lost about 28.8% during 2008. Applied to a $500,000 nest egg, that would leave roughly $356,000 before withdrawals. If the retiree also needed $20,000 for living expenses that year, the portfolio could fall to around $336,000.

The 2020 crash provides another stress test

Unlike the 2008 financial crisis, the COVID-19 crash unfolded much faster. The S&P 500 fell roughly 34% from its February 2020 peak to its March low. A Buffett-style 90/10 portfolio also suffered a major decline, with one current backtest putting its maximum COVID-era drawdown at about 30.7%.

On a $500,000 portfolio, a 30% decline would temporarily wipe out around $150,000. The good news is that the 2020 market recovered unusually quickly. The same 90/10 backtest recovered its losses within several months. But retirees could not know in March 2020 that the rebound would arrive so soon.

Someone forced to sell stocks near the bottom would have fewer shares participating in the recovery, turning what might otherwise have been a temporary market loss into a more lasting hit to the portfolio.

Withdrawals turn temporary losses into a problem

Suppose a retiree starts with $500,000 and plans to withdraw $20,000 annually. If the portfolio falls to $350,000 before that withdrawal, taking another $20,000 removes nearly 6% of the remaining balance.

Money removed from the portfolio also misses out on any subsequent recovery. Vanguard's 2026 retirement-income research emphasizes that poor returns combined with withdrawals early in retirement can turn sequence-of-returns risk into longevity risk, increasing the chance that savings run out sooner than expected.

In one hypothetical example, a $1 million diversified portfolio starting at age 66 ran out around age 88 under poor market conditions, compared with around age 91 under typical conditions.

The 10% bond cushion may not be enough for everyone

The 10% held in short-term government bonds provides retirees with some money that is not exposed to stock-market swings. However, the cushion may be relatively small once withdrawals begin.

That's why some retirees prefer a larger allocation to bonds, cash, or other relatively stable assets. The appropriate mix depends on spending needs, Social Security and pension income, risk tolerance, and how much of the portfolio must fund everyday expenses.

Buffett's 90/10 rule isn't necessarily wrong

Buffett's strategy is built around long-term exposure to American businesses at low cost, and nothing about sequence risk disproves that philosophy.

Retirement introduces regular withdrawals, so the same allocation can carry very different levels of risk depending on how heavily someone relies on the portfolio for income. This makes the same 90/10 allocation potentially appropriate for one investor and uncomfortable for another.

Bottom line

Warren Buffett's 90/10 portfolio can deliver substantial long-term stock exposure, but retirees face a risk that long-term investors do not: They may need to sell investments during a major downturn.

Retirees considering such a stock-heavy allocation may want to think beyond average long-term returns and ask whether their retirement plan includes enough cash or other stable assets to avoid selling stocks after an early market drop.

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