In fact, many economists think it is investors who are right and the standard advice that is wrong. They believe equity exposure should not fall as our time horizons shrink, because although shorter-term investors face the large chance of near-term falls, they face less long-run uncertainty or the risk of complete disaster. On balance, then, time horizons might not matter for many investors.
Instead, the impact of retirement upon asset allocation is not quite so simple. It depends upon (at least) five factors.
■ Retired people don’t have labour income.
Working people are better able than retired ones to bear equity risk if losses on their shares can be offset by income from their job. What's more, retired folk are more vulnerable than working ones to distributional risk - the risk (or hope) of a shift in incomes from profits to wages. Working shareholders can bear this risk because losses on their shares would be offset by fatter pay packets. Retired shareholders are more exposed.
All this points to us cutting our equity exposure when we retire. But there are offsetting considerations. One is that some people face a high correlation between their labour incomes and shareholdings: remember those Lehmans' employees who lost their jobs as the stock market crashed. For these people, equities become safer when they retire, so they can afford to hold more.
At longer-term horizons, many workers face this problem, simply because, in the long run, both our job prospects and share prices depend upon the state of the economy. For example, during Japan's "lost decades", working people suffered poor growth in real wages as well as falling share prices.
Retired people, however, don't face the danger that poor equity returns will be accompanied by worsening real wages and job prospects, and so can take more equity risk.
■ Retired people need an income from financial assets.
This is not a reason to prefer high-yielding stocks, because you can create an income from any asset simply by selling some of it; the case for income stocks is that they are sometimes underpriced, which is a different story.
It is, however, a reason not to hold shares, simply because their volatility generates income volatility. The volatility that matters here is that of prices - which is considerable - rather than that of dividends, which is less so. This is because if you take an income from a stock that has fallen in price you are, in effect, consuming out of your capital which - while sensible up to a point for an older investor (you can't take it with you!) - is a risky thing to do.
How big an issue this is depends on how reliant you are on equities for income. If you have other sources of income such that equity losses won't cause you to curb your spending, the risk is more bearable.
■ Retired people often aren't planning on moving house.
This has ambiguous effects on equity holdings. On the one hand, it makes equity risk easier to bear because shares are risky for anyone hoping to buy a house. If their prices fall, you might lose your chance of getting your dream home. If, however, you already have your dream home, this consideration doesn't apply, and so you can own more shares.
On the other hand, though, owning lots of shares exposes you to the risk of having to sell your home if your equity portfolio does really badly. Retired people, who tend to love their homes, would especially want to avoid this risk.
Net, this factor points to retired people being better able than working ones to bear modest amounts of equity risk, but not high levels of it.
■ Some retired people are hoping to leave a bequest to their children.
This argues for holding more shares. This is not because your time horizons are, in effect, longer when you consider your children's interests as well as your own; as we've seen, time horizons might be less important than you think. Instead, it's simply because two people can bear risk better than one; in effect, any losses are shared between you and your children.
■ Some retired people - those on flat-rate annuities - face more inflation risk.
Most workers are at least partly protected from inflation by the probability that they'll get some kind of pay rise. Retirees on level annuities are not; although flat-rate annuities do insure us against expected inflation, which is why they are more generous than RPI-linked ones in their early years, they do not insure us against unexpected inflation.
Of course, the state pension is inflation-proofed. But what if this is not enough inflation protection?
The answer then is to hold fewer shares because these don't protect us well from many types of inflation, such as a fall in sterling, rise in commodity prices or higher labour costs. Do not think that income stocks are better protection from inflation; history shows that, if anything, they are worse.
Instead, the way to protect yourself against unexpected inflation is to hold fewer shares and more inflation-protecting assets such as index-linked gilts.
All this, though, only applies to those retired people on level annuities. If you're well-protected against inflation risk by RPI-linked annuities, you can probably take on more equity risk, to the extent that you have one less other risk to worry about.
On balance, it's not at all clear that retired people in general should own fewer shares than working ones. The fact that investors' asset allocation doesn't change much on average with age is, then, not unreasonable.
There might, however, be a different sense in which age matters. 60-year-olds differ from 50-year-olds not because they are 10 years older, but because they were born 10 years earlier and so had different experiences in their young and impressionable years. And Ulrike Malmendier and Stefan Nagel, two California-based economists, have found that our formative years influence our investment decisions even decades later. People who saw good times and rising share prices when they were young are more likely to own shares than those whose formative years saw recession.
This suggests that today's 60-pluses, who were young adults during the booming 1960s, are more inclined to hold shares than slightly younger folk. Fiftysomethings have lively memories of the soaring inflation of the 1970s and so might be more disinclined to hold bonds as well as equities, while we 40-somethings are scarred by memories of the 1980s and 1990s recessions and so are more loath to take economic risks generally than those older (or younger) people whose formative years were spent in happier times. In this sense, perhaps age does matter - although not in the way advisers think it should.
