Rethinking the Rules of Retirement
For decades, investors have relied on a handful of simple rules to guide their retirement savings: subtract your age from 100 to find your stock allocation. Hold a 60/40 portfolio. Shift toward bonds as you get older. The advice is everywhere — in bestselling personal finance books, in the default settings of target-date funds, in the guidance of well-meaning advisors.
The problem, according to new research by Yale SOM Professor James Choi, is that the math doesn't support it.
What the research finds
Choi's 2025 paper, "Practical Finance: An Approximate Solution to Lifecycle Portfolio Choice" (with co-authors Canyao Liu and Pengcheng Liu), sets out to answer a deceptively simple question: what fraction of your portfolio should actually be in equities at each stage of your life?
The answer depends on factors that standard rules of thumb ignore entirely — most importantly, your future labor income. For most working-age investors, the bulk of their lifetime wealth isn't sitting in a brokerage account. It's in the paychecks they haven't yet earned. That future income functions like a bond: it's relatively stable, predictable, and not correlated with the stock market. Which means that for younger workers with decades of earnings ahead of them, their overall financial position is already heavily weighted toward bond-like assets — whether they realize it or not.
The implication is significant: holding a conservative investment portfolio early in your career doesn't actually make you more conservative. It makes you more conservative than you intended to be. For many people, holding more in equities — not less — is the appropriate response to the risk profile of their total financial picture.
Beyond the rule of thumb
What makes the paper practically useful is that it doesn't just identify the problem — it offers a solution. Choi and his co-authors derive a formula that computes the optimal equity allocation at each age, accounting for income, savings, risk tolerance, and the present value of future earnings. They also provide a downloadable spreadsheet that does the calculation for individual investors, translating academic research directly into a usable tool.
The paper has drawn significant attention in the personal finance press, including recent features in HerMoney and Money Talks News.
Why this work matters
Choi has spent much of his career studying the gap between what economic theory recommends and what people actually do — and whether the standard advice they receive closes that gap or widens it. His earlier work on automatic enrollment in 401(k) plans has influenced pension legislation in the United States and abroad. "Practical Finance" continues in that tradition: research that starts with a rigorous question and ends with something people can actually use.
