Finding balance in life is essential, and when it comes to financing your second act, rebalancing is just as important.
Investors rebalance their portfolios for a variety of reasons. Age, preservation of wealth and mitigating risk exposure during market volatility are all common motivators for rebalancing.
But for those who are nearing retirement or recently retired, all three of those factors come into play. Rebalancing helps get your asset allocation — or the mix of stocks, bonds and other investments in your portfolio — aligned with your long-term goals. At this stage of life, the purpose is not to maximize gains but rather to manage risk and ensure financial well-being throughout your post-work years.
Here’s what you need to know about when to rebalance and how to do it intelligently.
Rebalancing your portfolio before retirement
Rebalancing is something you should do periodically throughout your investing timeline, but you usually don’t want to rebalance based on market conditions, says Kelly Regan, vice president and financial planner at Girard, a Univest Wealth Division. Instead, rebalancing should be dictated by life stages, and retirement qualifies as a big one.
“Typically, a year out from retirement we start to get a little more conservative,” Regan says.
Here’s an example from history that shows why that’s so critical: In 2007, roughly 25% of 401(k) investors between the ages of 56 and 65 had more than 90% of their portfolios allocated to stocks, according to the Employee Benefit Research Institute.
When the Great Recession arrived that December, the S&P 500 went on to lose over 51% by the time it bottomed in February 2009. For older investors with considerable exposure to higher-risk growth stocks, there may not have been enough time to recover those losses before retiring.
The precise asset allocation that works best for you depends on your risk tolerance and how much passive income you’ll require in retirement. In general, though, financial experts recommend folks in their 60s should have a portfolio that’s around 60% stocks, 35% bonds and 5% cash.
Importantly, only investors who are in self-directed portfolios (e.g., Roth IRAs) have to proactively rebalance. If your nest egg is invested in target-date funds, the rebalancing happens automatically as you get older — though it’s a smart practice to check in periodically to make sure you’re aware of your asset allocation.
Beyond the basic asset breakdown, rebalancing also involves reconsidering the actual investments 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 simultaneously bolstering your income. Value stocks can help achieve both.
Value stocks, broadly, are offered at fair or below market value prices, making them affordable given their long-term profit potential. Because they are inherently lower risk than their growth stock counterparts, they tend to grow slower and typically pay dividends. Growth stocks, by comparison, often carry expensive valuations given their current returns. As higher risk investments, they have the potential to outperform the market. But they aren’t known for producing yield, meaning that the opportunity cost of investing in them is sacrificed dividend income.
When you’re decades from retiring, growth stocks — like those in the tech sector — can be a central part of your portfolio, Regan says. At those ages, investors have the time to recover from short-term losses while still drawing a salary, thereby negating the need to rely on dividend distributions.
But as investors approach retirement age, that strategy should be revisited. Regan says that “if you’re going to retire and be more dependent on [passive] income, value or dividend-oriented companies that are paying you a reward for owning them tend to carry a little less risk.”
These companies often fall into recession-resistant and recession-proof sectors that provide essential goods and services, such as utilities, food, clothing and gasoline — items that people will always pay for regardless of economic conditions.
For a company whose stock falls into the value category, its size and financial health is critical, too, according to Regan. She looks for large companies that have a good amount of free cash flow. “They’re going to be fine on days when the market swings,” she says. “Tall trees withstand the forest fire.”
Diversify with ETFs
Exchange-traded funds (ETFs) are another investment vehicle that can help pre-retirees transition away from higher risk stocks. These types of funds have surged in popularity in recent years because of their low fees 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% planned on increasing their use of the funds over 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 both are categorized as equities and are riskier than debt securities, which include bonds and other fixed-income investments. But the benefit of owning ETFs comes down to diversification and liquidity.
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 high average daily trading volume, meaning investors can access those funds faster than certificates of deposit (CDs), for example, which have strict terms and impose penalties for early withdrawals.
The downside is that most ETFs aren’t designed to beat the market so much as track it. But if you need investments that can generate considerable income in retirement beyond your fixed income sources like CDs and Social Security, then dividend-focused ETFs are “great vehicles,” Regan says.
These funds — such as the JPMorgan Equity Premium Income ETF (JEPI) — offer higher-than-average yields, often in the form of monthly distributions rather than quarterly payments.
Don’t overlook fixed-income securities
In addition to rebalancing your equity portfolio, one of the most common risk-off strategies is allocating funds away from stocks and ETFS and towards debt securities; namely bonds and CDs, as well as Treasurys issued by the U.S. government.
Because these investments have fixed interest rates, they carry significantly lower risk than stocks and provide investors with 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. Longer-dated Treasurys, for instance, are still providing over 4.08% APY, and the highest APYs for CDs are currently around 4.20%.
Cash alternatives like high-yield savings accounts and money market accounts also provide strong yields, offering a safe haven for people nearing retirement. Despite having variable interest rates, these types of accounts offer superior liquidity 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
While it is integral to rebalance your portfolios in the lead-up to retirement, it is equally important to revisit them once a year during retirement to help boost your income. Circumstances can change, and retirees may find themselves in need of additional income due to medical expenses, rising costs or unplanned housing changes.
Rebalancing can also further reduce your risk exposure thereby ensuring your money stretches longer into your golden years.
How you rebalance “really depends on your spending and what cash flow you need from those investments,” Regan says. “Do we need to be a little more aggressive to keep up with spending? Or maybe vice versa, can we be more conservative?”
This requires retirees to routinely revisit their household budgets to identify where expenses can be trimmed. This can help identify where portfolio rebalancing is needed and which approaches are most suitable — like maintaining the classic 60/40 allocation or shifting into a more conservative portfolio that puts at least half of your assets in fixed-income investments and cash alternatives.
It all comes down to your budget, financial goals and personal risk, Regan says. The allocations of the retirees she works with range anywhere from 40% stocks up to 70% stocks. “Some people think they’re going to live another 35 years in retirement, so we have to make sure that money’s going to last, and sometimes that takes a little more risk,” she says.
Consider reinvesting your required minimum distributions
Once you hit age 73, you’ll have to begin taking required minimum distributions (RMDs) if you have a 401(k), some 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 paycheck replacement,” Regan says. “If you don’t need that money, only take out what’s required and the rest is what we’re growing for the next generation.”
For those who don’t need to rely on RMDs to cover ongoing expenses, consider reinvesting those funds when you rebalance your portfolio. How you allocate that money depends on your personal circumstances and passive income goals. However, being too conservative and leaving RMDs as cash will limit the money’s growth potential and ultimately reduce how much passive income you’re generating.
Overall, there is no single way to rebalance in retirement. Instead, you should find a personalized balance between low-risk equities and lower-risk debt securities; ideally one that will produce enough income for you to enjoy your golden years in whatever way you spent your working years dreaming about.
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Finding balance in life is essential, and when it comes to financing your second act, rebalancing is just as important.
Investors rebalance their portfolios for a variety of reasons. Age, preservation of wealth and mitigating risk exposure during market volatility are all common motivators for rebalancing.
But for those who are nearing retirement or recently retired, all three of those factors come into play. Rebalancing helps get your asset allocation — or the mix of stocks, bonds and other investments in your portfolio — aligned with your long-term goals. At this stage of life, the purpose is not to maximize gains but rather to manage risk and ensure financial well-being throughout your post-work years.
Here’s what you need to know about when to rebalance and how to do it intelligently.
Rebalancing your portfolio before retirement
Rebalancing is something you should do periodically throughout your investing timeline, but you usually don’t want to rebalance based on market conditions, says Kelly Regan, vice president and financial planner at Girard, a Univest Wealth Division. Instead, rebalancing should be dictated by life stages, and retirement qualifies as a big one.
“Typically, a year out from retirement we start to get a little more conservative,” Regan says.
Here’s an example from history that shows why that’s so critical: In 2007, roughly 25% of 401(k) investors between the ages of 56 and 65 had more than 90% of their portfolios allocated to stocks, according to the Employee Benefit Research Institute.
When the Great Recession arrived that December, the S&P 500 went on to lose over 51% by the time it bottomed in February 2009. For older investors with considerable exposure to higher-risk growth stocks, there may not have been enough time to recover those losses before retiring.
The precise asset allocation that works best for you depends on your risk tolerance and how much passive income you’ll require in retirement. In general, though, financial experts recommend folks in their 60s should have a portfolio that’s around 60% stocks, 35% bonds and 5% cash.
Importantly, only investors who are in self-directed portfolios (e.g., Roth IRAs) have to proactively rebalance. If your nest egg is invested in target-date funds, the rebalancing happens automatically as you get older — though it’s a smart practice to check in periodically to make sure you’re aware of your asset allocation.
Beyond the basic asset breakdown, rebalancing also involves reconsidering the actual investments 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 simultaneously bolstering your income. Value stocks can help achieve both.
Value stocks, broadly, are offered at fair or below market value prices, making them affordable given their long-term profit potential. Because they are i
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