Date: Sep 22TH, 2022

Financial Planning – Rebalancing Your Portfolio for Retirement

If you’re nearing retirement age, you may be wondering how to restructure your investment portfolio for the future. Investing in later life doesn’t look like it should earlier in your career: if you’re close to retirement age, you’ll want less risky scenarios to protect you from a downturn in the market. This is particularly critical as some economists are predicting a recession in the near future (some say we’re already there!)

What Does Rebalancing Mean?

Rebalancing generally involves selling some stocks and purchasing some bonds to reset your asset allocation to match your risk tolerance and desired level of returns. The goal is to sell over-weighted assets.

If you have traditionally observed a balance of 80 percent stocks and 20 percent bonds, for example, you may want to move to fewer stocks and more bonds if you’re planning to retire in the next few years. Stocks carry more risks, and risk isn’t something you want to be engaging in if you’re nearing retirement age. 

Questions to Ask Before Rebalancing

There is no ideal timeframe or formula for rebalancing. Your unique circumstances will dictate how much rebalancing you do and when. Following are some questions to ask when considering a plan of rebalancing. 

How long will your spouse be working? If you’re both about the same age and planning to retire at the same time, you may want to balance more conservatively. On the flip side, if your spouse will be working years longer than you, you may have some room for risk for a few more years. 

How is your health? As we age, the chances of illness or injury become higher. If your health isn’t great, it’s a good idea to consider rebalancing your portfolio into something more conservative since you will probably be spending money sooner rather than later, and you may wind up racking up some medical bills or care bills.

What are your family responsibilities? If you have no family responsibilities, then you may be more risk-tolerant even as you near retirement age. If you have children that will be attending college in the near future, alimony to pay, dependents who are still young or a spouse who is likely to outlive you, you’ll want to take less risk with your investments. 

What are your plans for the future? If the future involves purchasing a new home, consider rebalancing into more bonds and fewer stocks, so your plans won’t be derailed if there’s a downturn in the market, and you have more ready cash to withdraw should a good opportunity arise. 

Consult with a Professional Investment Advisor

There are a lot of factors to consider before you rebalance, including your future plans, your expectations of how long you will live, whether you have long-term care insurance, your desire to leave money to family members, and your current configuration of retirement accounts. To optimize your rebalancing initiative, consult with a professional who can help you run through your various options and scenarios. 

Arizona-based Prime Wealth Advisors is a full-service tax, retirement planning, estate, and wealth management firm that can take the guesswork out of filing your taxes. Call 623.77.PRIME or visit our website for more information.