The rules for divvying up your assets are a bit different in retirement than during your working years. The reason? When you still have a paycheck coming in from work, you can afford to take on more risk in your investment portfolio. Once that steady paycheck goes away, you'll want to minimize (though not eliminate) investment risk because during retirement, you'll probably be using your investments as an income source. With that in mind, here are a few important guidelines for seniors to follow.

1. Have three to six months of living expenses in cash

The bulk of your retirement savings should be kept in a 401(k) or IRA, where it can remain invested and continue producing tax-advantaged gains. But it does pay to retain some money -- namely, enough to cover three to six months of bills -- in cash. The reason? If unplanned expenses strike, you'll have a means to cover them without running the risk of having to sell investments at a loss.

Older man holding cell phone to ear


Imagine you choose to own a home in retirement, and your heating system fails out of nowhere, leaving you with a multi-thousand-dollar bill on your hands. If you're forced to liquidate some investments to cover that expense at a time when your entire portfolio is down, you stand to take losses. But if you have the cash on hand, you can leave your investments alone, buy yourself a new heating system, and then wait until your investments recover to cash them out and replenish your emergency fund.

2. Don't dump your stocks

You'll often hear that once you're retired, it's a good idea to load up on safe investments, like bonds, which aren't subject to the same degree of volatility as stocks. But that doesn't mean you shouldn't retain stocks in your portfolio at all. Quite the contrary -- you need stocks to help your portfolio continue to generate growth.

What percentage of your portfolio should you keep in stocks as a retiree? It will somewhat hinge on your personal tolerance for risk, but as a starting point, you can use the rule of 110 to strike that balance. Specifically, if you subtract your age from 110, you'll get the percentage of your portfolio that should be allocated to stocks. If you're 70, for example, that means 40% stocks and 60% bonds. But, again, there's wiggle room with this formula depending on what your appetite for risk looks like.

3. Stay diversified

It's important to fill your portfolio with a wide range of stock and bond investments. That way, if a specific segment of the market takes a hit, your entire portfolio won't tank. A good way to diversify is to load up on index funds on both the stock and bond side, since they give you broad market exposure and take a fair amount of guesswork out of investing.

The smarter you are at dividing up your assets during retirement, the more likely you'll be to maintain a steady flow of income when you need it. And that's a good way to avoid the financial stress so many seniors succumb to.