Client Q&A: When Should I Start Reducing My Stock Exposure in Anticipation of Retirement?

This question rests on a common assumption: Near retirement, allocation to stocks should go down and bonds should go up, because stocks are risky and bonds are more predictable. But the right timing depends on when you’ll need the money, how much income you’ll have from other sources, and how much market volatility your portfolio can tolerate. 

Today, retirement can last 30 years or more, so many portfolios still need some growth potential after paychecks stop. Money needed soon should generally be invested more conservatively than money intended for later years. 

For that reason, many investors adjust their portfolios gradually before retirement, instead of making one large shift. This can help reduce the risk of a major market decline just before withdrawals begin while also preserving some long-term growth opportunity. 

Income sources also matter. Investors with pensions, Social Security, annuities, or other income may be able to hold more stocks than those relying heavily on portfolio withdrawals. 

A common approach is to keep several years of expected withdrawals in cash or high-quality bonds, with the rest invested for longer-term needs. This can reduce the need to sell stocks during a downturn. 

The key question is how much risk fits your goals, income needs, timeline, and comfort level. A financial advisor can help determine whether your current allocation supports your retirement plan, or if phased adjustments would be a good idea.