Rebalancing means bringing your portfolio back to its intended mix of stocks, bonds, and other assets. Over time, market movements cause your allocations to drift. If stocks have a great year, your portfolio may shift from 60% stocks to 70% — exposing you to more risk than you planned for.

For retirees, this matters more than it does for younger investors. You don't have decades to recover from a major loss. If your portfolio is overweighted in stocks heading into a downturn, you could be forced to sell at a loss just to cover living expenses — triggering sequence-of-returns risk.

There are two main rebalancing approaches. Calendar rebalancing means reviewing your portfolio on a set schedule — typically quarterly or annually — and adjusting back to target. Threshold rebalancing means only rebalancing when an asset class drifts beyond a set percentage, like 5% above or below target. Many advisors recommend combining both: review quarterly, rebalance only if drift exceeds 5%.

Tax efficiency matters when rebalancing. In taxable accounts, selling appreciated assets triggers capital gains taxes. Retirees should prioritize rebalancing inside tax-advantaged accounts (IRA, 401k) first, and use new contributions or RMD distributions to rebalance in taxable accounts where possible.

As you age, your target allocation itself should shift — gradually moving toward more income-producing, lower-volatility assets. Rebalancing isn't just about returning to your old target. It's also about updating that target as your timeline shortens.

• ✓Rebalance once or twice a year, or when any asset class drifts more than 5% from its target.
• ✓Rebalancing in retirement is about managing risk — not chasing returns.
• ✓Prioritize rebalancing inside tax-advantaged accounts to avoid unnecessary capital gains taxes.
• ✓Your target allocation should shift over time — becoming more conservative as you age.
• ✓A drift toward stocks before a downturn can force you to sell at a loss — rebalancing prevents that.

Calendar Rebalancing: Review and rebalance on a fixed schedule — quarterly, semi-annually, or annually. Simple and consistent, but you may rebalance when drift is minimal, creating unnecessary transaction costs or tax events.

Threshold Rebalancing: Only rebalance when an asset class moves beyond a set band — typically ±5% from target. More responsive to market swings but requires ongoing monitoring.

Combined Approach (Recommended): Review the portfolio quarterly. Only execute trades if any allocation has drifted beyond 5%. This minimizes unnecessary transactions while keeping risk in check.

Rebalancing with Withdrawals: In retirement, you can also rebalance naturally by taking your income withdrawals from the overweighted asset class. If stocks have grown disproportionately, draw your monthly income from equities rather than selling bonds — bringing the allocation back in line without a separate rebalancing transaction.

• ✗Rebalancing too frequently — excessive trading generates unnecessary taxes and transaction costs.
• ✗Never rebalancing — a portfolio that started at 60/40 can easily drift to 80/20 after a bull market, leaving you dangerously exposed.
• ✗Rebalancing in taxable accounts first — always use tax-advantaged accounts when possible to avoid triggering capital gains.
• ✗Keeping the same target allocation for decades — your risk tolerance and time horizon change, and your allocation should too.
• ✗Letting emotions drive rebalancing decisions — selling everything after a market drop is panic, not strategy.

→What Is Sequence of Returns Risk? →What Is a Safe Withdrawal Rate? →What Happens If the Market Crashes After I Retire?