Ask an Advisor: At 65, Should I Be Rebalancing My 401(k) from Stocks to Bonds?

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In my 401(k) retirement plan, I’m 82% stocks. I’m 65 and still working. Should I be moving my stocks to bonds?

-Bob

While it’s not a satisfying answer, the real answer is that “it depends.” The decision of whether to shift your 401(k) to a more conservative asset allocation will depend primarily on your longer-term goals, personal drivers of your risk/return profile and the asset allocation in your other accounts, if applicable. (And if you need help picking a suitable mix of stocks and bonds, consider speaking with a financial advisor.)

Before making any asset allocation decisions, I suggest you start by reflecting on your long-term goals for these savings. What do you intend to use the money for? Gaining a clear understanding of your longer-term goals will largely inform your time horizon, risk tolerance and return objective, the three inputs which collectively drive asset allocation decisions.

If your goal is to use the entirety of these savings for income when you eventually retire, then your time horizon will be your remaining time working plus your retirement years. With this goal and time horizon, you’ll need to evaluate your retirement readiness in the context of all sources of retirement income, including your 401(k) plan, other investment and savings accounts and Social Security, among others.

If you feel that you are behind in saving the amount required to support your desired level of spending in retirement, you will likely have a higher return objective since you need to achieve additional growth in your portfolio to advance your retirement goals. A higher return objective is generally associated with taking on more risk. Prioritizing capital appreciation by maintaining more exposure to stocks could be necessary in this situation. However, if you are confident that the various sources of retirement income can support this spending, you might have a lower return goal that emphasizes capital preservation rather than growth. Shifting to a more conservative allocation in the retirement plan could be prudent.

Perhaps you have built up more than enough savings to support your retirement and wish to pass on some of your assets to future generations. Multigenerational goals will require a different outlook. In this case, maintaining a more aggressive, equity-oriented asset allocation could make sense since the time horizon will extend beyond your retirement period into the next generation(s). (And if you need help setting financial goals, like retiring by a certain age, a financial advisor can help.)

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