Why might retirees prefer a higher allocation to bonds compared to younger investors?

• A. To maximize growth
• B. To avoid taxes
• C. To increase risk tolerance
• D. To promote income and reduce volatility, preserving capital while meeting income needs

Answer: (D)

Retirees focus on steady income and preserving the money they have, rather than chasing big growth. Bonds fit that goal because they offer regular interest payments (income) and are generally less volatile than stocks, helping to smooth out swings in the portfolio. With withdrawals needed for living expenses, preserving principal becomes crucial, and the lower price volatility of bonds helps protect the portfolio from large losses when markets wobble. This combination—income plus reduced volatility—makes a higher bond allocation well suited for retirement.

The other options don’t fit as well. Maximizing growth implies taking on more risk and relying on stock market gains, which isn’t ideal when retirees depend on their savings for income. Taxes aren’t the primary motivator for allocating to bonds in retirement, and retirees usually seek to minimize risk rather than increase it. Increasing risk tolerance is the opposite of what a retiree typically needs.