How Should Your Investments Change as Retirement Approaches?
Key Takeaways:
- Your portfolio's job changes as you near retirement. For decades, it was built to grow. Now it also has to protect the money you'll be living on soon, and that calls for a different balance.
- Don't confuse “safer” with “all cash.” Retirement can last 30 years, so you still need growth to outrun inflation. The shift is about adjusting the mix rather than abandoning stocks.
- Move gradually. The years right around retirement are the riskiest time to get your allocation wrong, so ease into changes on purpose instead of making one big, sudden move.
For most of your working life, your investments had one job: grow. You could ride out a rough year because you weren't touching the money, and time was on your side. As retirement gets close, that changes, and so should your portfolio. A 65-year-old today can expect to live into their mid-80s on average, and about 1 in 4 will live past 90,1 so your money may need to last 25 or 30 years. At the same time, you can't afford a big loss right as you start drawing on it.
That tension, needing growth for the long haul while protecting what you'll spend soon, is what should reshape your investment strategy in the years around retirement. It doesn't mean fleeing to cash. It means giving your portfolio a new job description.
Understand How the Portfolio's Job Changes Near Retirement
While you're working and saving, a down market is almost a buying opportunity. You keep contributing, and you have years for it to recover. Once you retire and start withdrawing, that same down market works against you, because you're selling investments to fund your life while they're depressed, which locks in the losses.
This is sequence-of-returns risk, and it's why the timing of returns matters so much near retirement. A rough stretch in your first few years of retirement can do lasting damage that the same stretch ten years later wouldn't, because those early losses come out of a portfolio you're actively drawing down. The roughly five years on either side of your retirement date are the danger zone, what we call the Transition Trap™, when getting your allocation wrong hurts the most.
Build the Portfolio Around When the Money Will Be Needed
One of the most useful ways to think about a retirement portfolio is in terms of time. Money you'll need in the next few years shouldn't be exposed to a market that could drop 20% right before you spend it. Money you won't touch for 15 or 20 years can, and should, stay invested for growth.
This time-based approach is the backbone of a solid retirement income plan. It gives your spending money a stable home while letting the rest keep working, so a bad market turns into something you can wait out instead of a crisis.
Give Cash and Fixed Income a Larger Supporting Role
As retirement nears, cash and high-quality bonds help ensure you don't have to sell stocks at the worst possible moment. A few ways they help:
- Cash reserves: Keeping a cushion of cash or equivalents, often enough to cover a year or two of spending, means a market drop doesn't force you to sell investments to pay the bills. It's your first line of defense against sequence risk.
- Quality fixed income: High-quality bonds can provide steadier income and act as ballast when stocks fall. As retirement approaches, they typically take up more of the portfolio than they did in your growth years.
- Near-term stability: The money earmarked for your first several years of retirement belongs in lower-volatility investments, so the income you're about to rely on isn't riding on the market's mood in any given year.
- Income support: Together, cash and bonds can create a dependable income base and a buffer, which lets your growth investments stay invested long enough to do their job.
Keep Long-Term Assets Positioned for Growth
The opposite mistake wrecks just as many plans: getting so conservative that your money can't keep up with inflation. Over the past three decades, consumer prices have more than doubled,2 so a portfolio parked entirely in cash and bonds may not grow fast enough to protect your purchasing power over a long retirement.
So the long-term slice of your portfolio, the money you won't touch for a decade or more, should stay invested for growth. Stocks are still the engine that keeps a long retirement funded, even if they make up a smaller share of the total than they used to.
The right amount of growth depends on your timeline, your other income, and how much risk you can genuinely live with. But for almost everyone, the answer isn't zero. A meaningful growth allocation is what lets a portfolio support you for 25 or 30 years instead of slowly running dry.
Make the Transition Gradually and Manage Risk Deliberately
Knowing you should shift your investments is one thing. Doing it well is another. The years around retirement are the wrong time for a rushed, all-at-once overhaul, so it pays to move deliberately. A few principles make the shift smoother:
Set a retirement-aligned allocation: Decide on a target mix of stocks, bonds, and cash that fits your retirement timeline, income needs, and risk tolerance, then use it as your north star. A clear target keeps your adjustments intentional instead of reactive.
Strengthen diversification: Spreading your money across different types of investments smooths the ride and lowers the chance that any single holding or sector can derail your plan. Diversification matters even more once you're relying on the portfolio for income.
Address concentrated positions: A large position in one stock, often company stock, is a hidden risk right when you can least afford it. Trimming it gradually, with an eye on taxes, reduces the chance that a single bad break will dent your retirement.
Rebalance in stages: Rather than flipping your allocation overnight, shift it over the course of months or a few years. Moving in stages lowers the risk of making a big change at the worst possible moment and gives you room to adjust as you go.
Coordinate accounts and taxes: Where you hold each investment matters. Placing tax-inefficient assets in tax-sheltered accounts, and drawing from accounts in a sensible order, can lower the tax drag as you rebalance and start taking income.
Adjust the strategy as retirement changes: Your allocation isn't a one-time decision. Revisit it as your spending, health, income sources, and goals evolve, so the portfolio keeps matching the life it's funding.
Changing Your Investments Before Retirement FAQs
1. At what age should I start making my investments more conservative?
There's no magic age, but many people begin shifting in their 50s and step it up in the five years or so before retirement. What matters more than your age is your timeline, how soon you'll need the money, your other income, and how much risk you can handle. The move should be gradual rather than a switch you flip at 65.
2. Is a 70/30 portfolio too aggressive for retirement?
It depends on the person. A 70% stock, 30% bond mix can be reasonable for an early retiree with a long horizon and steady income from other sources, and too aggressive for someone who'll lean heavily on the portfolio right away. The right allocation comes from your income needs and risk tolerance rather than a rule of thumb.
3. Should I move my 401(k) to safer investments before retiring?
Often you'll want to shift part of it toward stability, though not the whole thing. Your 401(k) may need to last decades, so keeping some growth usually makes sense. A common approach is to secure the money you'll need first in more stable investments, while leaving the long-term portion invested for growth.
4. How much cash should I keep as I approach retirement?
A common guideline is enough cash to cover a year or two of spending, on top of your emergency fund, so a market drop doesn't force you to sell investments for income. The right amount depends on your other reliable income and how much cushion helps you sleep at night.
5. Can Social Security or pension income affect how much investment risk I take?
Yes, quite a bit. If Social Security and a pension cover most of your essential expenses, your portfolio has a smaller, more flexible job, which can let you keep more growth exposure. The less your day-to-day spending depends on the portfolio, the more risk you can generally afford to carry in it.
6. What is the number one mistake retirees make?
Two big ones. Some retirees stay too aggressive and get caught by a bad market right as they start withdrawing. Others overcorrect and go so conservative that inflation slowly erodes them. The sweet spot is a balanced, deliberate shift, with enough stability for the near term and enough growth for the long haul.
Get Help Adjusting Your Investments for Retirement
As retirement approaches, your investments need to do two things at once: protect the income you'll spend soon and keep growing the money you'll need decades from now. Getting that balance right, and easing into it gradually, is one of the most important moves in the whole retirement transition.
That's the work we do with clients at ClientFirst. We can map your income needs against your timeline, build a portfolio that gives your near-term money stability and your long-term money room to grow, and help you make the shift in stages, with taxes and sequence risk in mind.
We can also keep the plan on track as markets move and your life changes, so your allocation always fits where you actually are. If you'd like help adjusting your investments for the years ahead, schedule a complimentary consultation with our team.
Resources:
1. Social Security Administration: Period Life Table
2. U.S. Bureau of Labor Statistics: CPI Inflation Calculator
Disclosure:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
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