Key Takeaways
- Pre-retirees need to find the sweet spot between protecting what they’ve saved and still growing their money to last throughout retirement.
- The “enough not more” approach can help you avoid risky moves while keeping your retirement on track.
- Common pre-retirement investing mistakes include being too conservative too early, emotional decision-making, and neglecting regular portfolio reviews.
- Professional guidance becomes increasingly valuable as you coordinate investment decisions with tax planning, Social Security, and healthcare considerations.
If you’re in your 50s or early 60s, you’re probably thinking more about retirement. Maybe you’ve even started doing some math to determine if you’ll have enough saved. It’s an exciting time and an important transition as you shift from building wealth to preparing for the next chapter of your life.
Here’s what makes this stage of life unique for pre-retirees — you’ve worked hard for decades to build up your savings but you still need that money to keep growing since your retirement could last 30 years or more. You’re looking for that sweet spot between protecting what you have while still taking some smart risks to stay ahead of inflation and generate income that will last throughout retirement. Getting that balance right can help set you up for retirement success.
Why Asset Allocation Matters More Before Retirement
Simply put, asset allocation is the way you divide up your portfolio between different types of investments, such as stocks, bonds, and cash. When you were younger, you probably didn’t worry too much about this mix because you had plenty of time to ride out market ups and downs.
But now? The investment decisions you make in the next few years can significantly impact your retirement security. There’s a term for this called “sequence of returns risk,” which means that experiencing poor market performance in the years right before or after you retire can have a lasting impact on your financial well-being.
The best asset allocation in retirement planning starts with understanding that you need three things at once: enough growth to keep up with rising costs over decades, enough stability to weather market volatility, and the ability to generate income that lasts the duration of your retirement years.
How Can You Control Risk Without Sacrificing Your Retirement Goals?
Our investing philosophy is simple: We do not believe in taking unnecessary risks. “Enough not more” means finding the right balance of growth and stability to achieve your long-term goals.
What does “enough not more” actually mean? It means our clients don’t need to swing for the fences with risky investments to have a comfortable retirement. Instead, we encourage them to take just enough risk to reach their goals — no more, no less.
Think of it like driving to an important appointment. You don’t need to speed and weave through traffic (high risk) to get there on time. But you also can’t drive so slowly (too conservative) that you arrive late. You need to find that “just right” speed that gets you there safely and on time.
This approach becomes the foundation of effective preservation wealth management — strategically protecting and growing what you’ve already built while positioning yourself for the retirement years ahead.
What Role Do Stocks, Bonds, and Cash Play in a Pre-Retirement Portfolio?
Let’s break down the three main types of investments and what they can do for you:
Stocks are the growth drivers of your retirement portfolio. While they experience ups and downs, they’ve historically been a key opportunity for growing your money faster than inflation over the long run. Even as a pre-retiree, you’ll likely want about 50–70% of your money in stocks to help ensure you don’t outlive your savings in retirement.
Bonds are essentially loans you make to companies or governments, and they’re the stabilizers in your investment mix. They won’t make you rich but they provide steady income through regular interest payments and help smooth out the ups and downs when stocks get volatile. Cash and similar “safe” investments like money market accounts serve as your flexibility fund. They’re more liquid and easily accessible than stocks or bonds. They might make up 5–10% of your total portfolio — enough to cover opportunities and unexpected needs without having to sell other investments at an inopportune time.
Ideally, a retirement portfolio should contain a mix of all of these and other types of investments. It’s called diversification — spreading your money across different types of investments to help reduce risk in your portfolio and avoid too much exposure to any one single investment or market sector. Diversification is a time-tested way to manage risk and balance the asset allocation in your retirement portfolio.
Rebalancing Your Portfolio: When and How to Adjust
Over time, your investment mix will naturally drift away from what you originally planned. If stocks perform well, you might end up with 80% in stocks when you started with 60%, making your portfolio riskier than intended. If bonds outperform, you might become more conservative than planned, potentially falling short of your growth goals.
This drift is why getting your asset allocation right in retirement portfolio planning requires ongoing attention and regular rebalancing. As we put it: We monitor and rebalance your portfolio regularly to ensure each investment is serving your plan. As life happens, we realign your portfolio to reflect your current situation.
For our clients approaching retirement, we typically recommend reviewing and rebalancing their investment mix at least once a year, or whenever their allocations move more than 5–10% away from their targets. This disciplined approach helps them systematically buy more of what’s undervalued and reduce positions that have grown beyond their target allocation.
We also believe in maintaining a disciplined, long-term approach grounded in rigorous academic research. We stay true to the plan we’ve established together, and we are not easily swayed by short-term market “noise.”
This long-term perspective becomes especially valuable in your pre-retirement years when it’s tempting to make big changes based on market ups and downs, global or domestic political news, or the latest investment trends.
How Can You Minimize Taxes While Preparing for Retirement?
As retirement approaches, strategic tax planning becomes important because smart tax moves can significantly impact your retirement lifestyle and legacy goals. Here are some strategies that can help you keep more of what you’ve earned:
Health Savings Accounts (HSAs): Available with high-deductible health plans, these accounts offer a triple tax advantage. You get a tax break when you contribute, the money grows tax-free, and you can withdraw it tax-free for qualified medical expenses. After age 65, you can use the money in your HSA for other purposes — vacations, daily expenses, or other retirement needs (though you’ll pay regular income taxes on non-medical withdrawals).
Long-Term Care Insurance: Premiums for qualified long-term care insurance policies may be tax-deductible, and benefits are generally received tax-free.
Medical Expense Deductions: If your total medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the excess on your tax return. These costs can include insurance premiums, dental care, vision care, and long-term care expenses — costs that often increase in retirement.
Social Security Optimization: The timing of when you claim Social Security benefits affects your lifetime income, so strategic planning around when to start benefits relative to other retirement income sources can be an effective way to manage your overall tax situation.
Smart Withdrawal Sequencing: Having money in different “tax buckets,” such as traditional 401(k)s and IRAs (where savings are taxed when withdrawn), Roth accounts (which offer tax-free withdrawals), and regular investment accounts, provides flexibility to control your taxable income each year. For example, in years when you have lower income, you might withdraw more from tax-deferred accounts, while in higher-income years, you might lean more on tax-free Roth withdrawals.
Roth Conversions: Sometimes it makes sense to move money from a traditional IRA to a Roth IRA and pay the taxes now, especially if you expect to be in a higher tax bracket later or want to leave tax-free money to your heirs. The early retirement years often provide an ideal window for conversions when your income may be lower. For high earners who exceed the Roth IRA income limits, backdoor Roth conversions provide an alternative way to contribute money to tax-free Roth accounts.
Common Mistakes to Avoid in Pre-Retirement Investing
Many pre-retirees face similar challenges when managing their investments. Here are some common pitfalls and how to avoid them:
Being Too Conservative Too Early: Moving all your money to bonds and CDs five or 10 years before retirement, or in the early years of retirement, might feel safe but it can leave your savings vulnerable to inflation, eroding your purchasing power over 20–30 years of retirement.
Emotional Investing: Trying to time the market by jumping in and out of investments based on recent performance often leads to buying high and selling low. Additionally, when you panic and move to cash during a downturn, you risk missing the recovery and the opportunity to recoup temporary losses.
Inadequate Emergency Reserves: Not having sufficient cash reserves can force you to sell investments at inopportune times to cover unexpected expenses.
Ignoring Inflation Impact: Many pre-retirees fail to account for how rising costs will affect your retirement purchasing power over time. Even modest 3% annual inflation means your expenses could double over 20+ years of retirement, which is why maintaining some growth in your portfolio both leading up to and throughout retirement remains important.
Lack of Diversification: Whether it’s too much company stock, concentration in one sector, or over-reliance on one type of investment, insufficient diversification has the potential to expose your retirement portfolio to unnecessary risk.
Neglecting Regular Reviews: Your investment strategy should evolve as you approach retirement and as your circumstances change. In other words, what worked at 45 may no longer be appropriate at 62.
Should You Work with a Financial Advisor as You Near Retirement?
Pre-retirement planning involves coordinating multiple complex decisions simultaneously. You’re balancing investment management with tax planning, Social Security optimization, healthcare planning, and estate considerations. Many people find this coordination challenging to manage effectively on their own.
At Blankinship & Foster, we’ve built our approach around three principles that matter most for people in your situation:
QUALITY. We build a diversified, low-cost mix of investments that fits your specific goals and situation. Our San Diego retirement planners understand a personalized approach works better than one-size-fits-all solutions when you’re approaching retirement.
TRANSPARENCY. We don’t believe in hidden fees or confusing investment statements. Our reports are written in plain English, and we make sure you understand exactly what you own and why.
GUIDANCE. We take time to really understand your situation and what matters most to you. We coordinate your investment strategy with your overall financial plan, drawing on decades of experience helping people make a smooth transition from their working years to retirement.
Successful retirement planning requires more than just investment management — it’s about ensuring all aspects of your financial life work together harmoniously as you transition into retirement.
These pre-retirement years are a pivotal time: You can see retirement ahead but the choices you make now will shape how it unfolds. With a thoughtful investment strategy, regular portfolio maintenance, and professional guidance when needed, you can approach retirement with confidence.Want to ensure your investment approach aligns with your retirement timeline? Our team of experienced financial planners specializes in helping pre-retirees create customized strategies that balance growth with security. Reach out to us to schedule your complimentary consultation and discover how we help pre-retirees find that important balance between protecting and growing their wealth.