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Rebalancing in Retirement: Keeping Your Mix

A retirement portfolio is usually a mix: stocks for growth, bonds to steady the ride and pay the bills in a bad year. Markets do not leave that mix alone. Rebalancing is the habit of putting it back, by selling some of whatever grew and buying whatever fell behind.

It is a risk decision more than a return decision. Rebalancing keeps the portfolio as risky as you chose, and no riskier. Letting the mix drift, or spending one part first, changes the risk you carry as you age, and history shows both what that has paid and what it can cost.

Why a mix drifts

Start at 60% stocks and 40% bonds. If stocks rise 20% in a year and bonds stay flat, the mix is now 64% stocks without a single trade. Over a long rise the drift compounds, and a portfolio that was moderate at 65 can be mostly stocks at 80, just as a crash would hurt most.

In retirement there is a second force. Every withdrawal comes out of something, and which holding you sell moves the mix too. Spend from bonds and the stock share rises; spend from stocks and it falls.

Three ways to hold a mix, through history

Take a retiree with $1M, 60% in stocks, spending 4% of the start each year and raising it with prices. Run them through every 30-year span of US market history from 1872 to 2024, 124 retirements in all, three ways: rebalancing to 60% every year; never rebalancing, with each withdrawal taken from stocks and bonds in proportion; and spending the bonds first, so the portfolio drifts toward stocks.

Approach	Lasted	Median left	Stocks at the end
Rebalance yearly	120 of 124	$1.3M	60%
Never rebalance	120 of 124	$1.9M	83%
Spend bonds first	122 of 124	$2.7M	100%

Real stock and 10-year Treasury returns, 1872–2024, from the Shiller series the plan's simulations draw from. “Median left” is in today's dollars after 30 years; “Stocks at the end” is the median over the retirements with money left. No fees or taxes.

Letting stocks take over has paid in US history, because US stocks beat bonds in every one of those 124 30-year spans. That is the bet, and it is also the risk: a retiree who ends almost all in stocks has nothing steady left to spend from in a crash late in life, and a different country or century need not repeat the US record.

One retirement at a time

Pick the year the retiree stops working and follow the same 30 years of real market history under each approach.

Explore: the year you retire

Retire at the start of1973

18721995

Rebalance yearly

$222.9K

left, 60% in stocks

Never rebalance

$99.1K

left, 72% in stocks

Spend bonds first

$601.9K

left, 100% in stocks

Balance in today's dollars, retiring in 1973

Rebalance yearlyNever rebalanceSpend bonds first

What the research says

How often matters little. Vanguard's study of US stocks and bonds since 1926 found no best schedule: rebalancing monthly, quarterly or yearly gave much the same risk and return, while the costs of trading rose with frequency. Its suggestion is to check once or twice a year and act when a holding has drifted more than 5% of the portfolio from its target: past 65% stocks for a 60% target.

The early years carry the most risk. A crash in the first years of retirement does the most damage, because it hits the largest balance just as withdrawals begin. Wade Pfau and Michael Kitces showed in 2014 that a rising glide path, starting retirement with fewer stocks and adding them over time, can lower both the chance and the size of a shortfall. Their worked example started at 30% stocks and rose to 60%. Spending bonds first is a blunt version of the same idea.

Rebalancing without selling

A retiree rarely needs to trade just to rebalance. Each withdrawal can come from whatever is over its target, and in a year when stocks fall, the spending comes from bonds, which is exactly what bonds are for. Inside a 401(k) or IRA a trade owes no tax, so that is the place to do any rebalancing that withdrawals don't. In a taxable account, selling a winner realizes a gain, so steer the withdrawals there instead.

How the plan holds a mixExample

The sample plan holds 80% stocks and 20% bonds across its accounts, weighted by balance, which the plan expects to earn 7.3% a year after inflation.

The plan's projections and simulations hold that mix for the whole plan and rebalance to it once a year, the first approach above. It has no glide path: if you mean to shift toward bonds, or toward stocks, as you age, the plan does not show that yet. Each account's stock and bond mix is set on the Assets & debts page.

Example figures from a sample household. Build your plan →

The bottom line

Pick a mix you can hold through a crash, and decide on purpose whether it should stay put or change as you age. Rebalancing once a year, mostly through the withdrawals you were making anyway, keeps the risk where you set it. Letting stocks rise over a retirement has paid in US history, but it is a choice to take more risk later, not a free lunch.