How to Balance Your Retirement Investment Portfolio
Finding balance in life is important, and when it comes to financing your second act, re-balancing it is equally important.
Investors rebalance their portfolios for a variety of reasons. Age, wealth preservation and reducing risk exposure during market volatility are all common motivations for rebalancing.
But for those who are about to retire or have just retired, all three of those factors come into play. Rebalancing helps your asset allocation — or the mix of stocks, bonds and other investments in your portfolio — align with your long-term goals. At this stage of life, the goal is not to maximize profits but rather to manage risk and ensure financial well-being during your post-retirement years.
Here’s what you need to know about when and how to balance wisely.
Rebalancing your portfolio before retirement
Rebalancing is something you should do periodically throughout your investment life, but you generally don’t want to rebalance based on market conditions, says Kelly Regan, vice president and financial planner at Girard, Univest Wealth Division. Instead, rebalancing should be determined by stages of life, and retirement should be considered as a major factor.
“Usually, a year after retirement we start getting stronger,” Regan said.
Here’s an example from history that shows why that’s so important: In 2007, about 25 percent of 401(k) investors between the ages of 56 and 65 had more than 90% of their savings allocated to stocks, according to the Employee Benefit Research Institute.
When the Great Recession hit that December, the S&P 500 went on to lose more than 51% of its lows in February 2009. For older investors with heavy exposure to high-risk growth stocks, there may not have been enough time to recoup those losses before retirement.
The exact asset allocation that works best for you depends on your risk tolerance and the amount of income you will need in retirement. However, in general, financial experts recommend that people in their 60s should have a portfolio of about 60% stocks, 35% bonds and 5% cash.
Importantly, only investors in self-directed portfolios (eg, Roth IRAs) need to balance continuously. If your nest egg is invested in target date funds, rebalancing happens automatically as you get older – although it’s a smart practice to check in periodically to make sure you’re aware of your asset allocation.
Beyond the separation of the underlying asset, rebalancing involves reconsidering the actual investment you’re putting your money into. As you approach retirement, consider the following changes.
Rotate from growth stocks to value stocks
When it comes to rebalancing your stocks, you want to add a layer of safety while at the same time bolstering your income. Value stocks can help accomplish both.
Value stocks, in general, are offered at fair or below market value, making them affordable given their long-term profit potential. Because they are inherently lower risk than their growth stock counterparts, they tend to grow slowly and often pay dividends. Growth stocks, by comparison, tend to command expensive valuations given their current returns. As a high-risk investment, they have the potential to outperform the market. But it is not known to produce a yield, which means that the opportunity cost of investing in them is the benefit of the profit offered.
If you’re decades away from retirement, growth stocks — like those in the technology sector — can be a key part of your portfolio, Regan says. In those years, investors have time to recover from short-term losses while still earning income, thereby negating the need to rely on dividends.
But as investors approach retirement age, that strategy should be revisited. Regan says “if you’re going to retire and you’re very dependent on it [passive] Income, value or equity-focused companies that pay you a premium to own them tend to carry less risk.”
These companies tend to fall into recession-proof and economy-proof sectors that provide essential goods and services, such as utilities, food, clothing and fuel – things people will continue to pay for regardless of economic conditions.
For a company whose stock falls into the value category, its size and financial health are important, too, according to Regan. You look for great companies that have a good amount of free cash flow. “They will be ready on days when the market changes,” he said. “Tall trees resist forest fires.”
Diversify with ETFs
Exchange-traded funds (ETFs) are another investment vehicle that can help pre-retirees move away from high-risk stocks. These types of funds have grown in popularity in recent years due to their low costs and broad market exposure.
Nearly 90% of financial planners in a recent survey said they currently use or recommend ETFs — the most among any asset class — and 60% plan to increase their use of funds in the coming year. Meanwhile, everyday investors are piling money into these funds at a record pace.
ETFs offer a similar risk profile to stocks in that they are both classified as stocks and riskier than debt securities, which include bonds and other fixed income investments. But the benefit of owning ETFs comes down to diversification and leverage.
These funds give investors exposure to multiple sectors – or multiple companies operating within a sector – thereby reducing risk compared to owning individual stocks. Additionally, they typically have a higher average daily trading volume, meaning investors can access those funds faster than certificates of deposit (CDs), for example, which have stricter terms and impose early withdrawal penalties.
The downside is that most ETFs aren’t designed to beat the market by much by tracking it. But if you need investments that can generate more income in retirement than your fixed income sources like CDs and Social Security, then dividend-oriented ETFs are “great vehicles,” Regan says.
These funds — like the JPMorgan Equity Premium Income ETF (JEPI) — offer higher-than-average yields, often in the form of monthly distributions rather than quarterly payments.
Ignore fixed income securities
In addition to rebalancing your equity portfolio, one of the most common de-risking strategies is to allocate funds away from stocks and ETFS and debt securities; ie bonds and CDs, and Treasuries issued by the US government.
Because these investments have fixed interest rates, they have much lower risk than stocks and offer investors predictable returns. As you approach retirement age, these investments should represent anywhere from 30% to 40% of your portfolio.
Despite the Federal Reserve cutting interest rates three times in the second half of 2025, fixed income products still offer strong yields. Long-term Treasuries, for example, still offer an APY of more than 4.08%, while the highest APYs for CDs are currently around 4.20%.
Cash alternatives such as high-yield savings accounts and money market accounts also offer solid yields, providing a safe haven for people nearing retirement. Despite having variable interest rates, these types of accounts offer higher returns compared to debt securities. For that reason, Regan recommends keeping three to six months’ worth of cash in a high-interest account.
Rebalancing your portfolio during retirement
Although it is important to rebalance your portfolios before retirement, it is equally important to revisit them once a year in time retirement to help increase your income. Circumstances can change, and retirees may find themselves needing more money due to medical expenses, rising costs or unplanned housing changes.
Rebalancing can also reduce your risk exposure thereby ensuring that your money lasts long into your golden years.
How you rebalance “really depends on your usage and what cash flow you need from that investment,” Regan said. “Do we need to be more aggressive to keep up with spending? Or maybe vice versa, can we be more conservative?”
This requires retirees to regularly revisit their household budget to see where expenses can be cut. This can help identify where a portfolio rebalancing is needed and which approaches are most appropriate — such as keeping the old 60/40 allocation or switching to a conservative portfolio that puts at least half of your assets in fixed income investments and other forms of income.
It all depends on your budget, financial goals and personal risk, says Regan. Shares for retired co-workers range from 40% to 70%. “Some people think they’re going to retire for another 35 years, so we have to make sure the money is going to last a long time, and sometimes that takes more risk,” he said.
Consider replanting your minimum required distribution
Once you reach age 73, you’ll need to start taking required minimum distributions (RMDs) if you have a 401(k), other employer-sponsored retirement plan, or a traditional IRA. These account withdrawals will affect your income and taxes.
“Most people use their RMD as a cashback,” says Regan. “If you don’t need that money, take out only what is needed and then something else we raise for the next generation.”
For those who don’t need to rely on RMDs to cover ongoing expenses, consider reinvesting those funds when rebalancing your portfolio. How you get that money depends on your personal circumstances and income goals. However, saving too much and leaving RMDs as cash will limit your money’s growth potential and ultimately reduce how much income you make.
Overall, there is no single way to measure retirement. Instead, you should find a personal balance between low-risk stocks and low-risk debt securities; ideally one that will generate enough income to enjoy your golden years in whatever way you spent your working years dreaming of.
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