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Is your portfolio ready for retirement?

How to balance income and growth as retirement approaches.

Key takeaways

  • Asset allocation should be part of a comprehensive financial plan for your retirement.
  • Your retirement portfolio should balance current needs for income with future needs for growth.
  • Your risk tolerance, time horizon, and individual financial circumstances will also play a role in your asset allocation.
  • Target date funds, asset allocation funds, and inflation-protected assets can potentially assist in your portfolio planning decisions.

The years immediately leading to retirement are a critical time for accumulating assets and developing a plan for how you want to spend your life after work. But the final stretch before retirement—especially the last year of employment—can be an important time to make decisions about income, benefits, taxes, and withdrawals, which together may have a significant impact on your finances.

Across the board you’ll need to make choices regarding your 401(k), health care, pension, and tax strategy. These will be part of a financial blueprint that reflects your post-work needs as you shift from earning an income to drawing down your savings. This blueprint should outline your goals, income sources, and expenses in retirement, and it should also provide the basis for your investment portfolio and the investing decisions you’ll need to make.

What do your retirement savings need to cover?

Your retirement savings need to do more than fund daily living costs such as housing, food, and health care. They must also fund unexpected or emergency expenses. Just as important, they should fund your discretionary expenses, which can include hobbies, travel, entertainment, and other things that may help you enjoy your life once you stop working.

A traditional retirement plan is often described as a 3-legged stool:

  • Short-term savings for immediate needs.
  • Guaranteed income for core expenses, such as Social Security, pensions, or annuities.
  • Investment accounts, including savings in tax-advantaged accounts such as IRAs and workplace plans like 401(k)s, as well as in brokerage accounts that are not tax-advantaged.

It’s this third leg—investments—that tends to be the most complex to manage. These assets need to support your current needs with ongoing and sometimes mandatory withdrawals (RMDs), as well as generate growth, typically for decades.

Fidelity estimates that retirees should try to replace up to 80% of pre-retirement income. But the reality is that many people don’t have pensions and Social Security may only replace about 35% of this income. That means retirement savings must often shoulder the rest, making your asset allocation plan particularly crucial.

Evaluate your income sources

Once you’ve defined how much money you’ll need to spend to sustain your lifestyle, that amount will become the foundation for your portfolio allocation and withdrawal planning.

A key step is to identify any gap between your sources of income and your expected expenses. Fidelity suggests that essential expenses—such as housing, food, and health care—should be paid for with predictable income such as Social Security benefits, income from pensions, and annuities. For investors who don’t have a traditional pension, one way to create additional guaranteed income may be to consider purchasing an annuity. Your investment portfolio can then be used to fund discretionary expenses and to provide longer-term growth.

Review your portfolio’s asset allocation

Three primary factors determine your asset allocation in retirement:

  1. Time horizon and goal length—when you plan to start withdrawing from your portfolio assets and how long you expect withdrawals from your portfolio assets to last in retirement. Fidelity assumes that someone retiring at age 65 should plan for a retirement lasting 30 years or more.
  2. Risk tolerance—your comfort level with market fluctuations.
  3. Personal circumstances—you may have different needs for income outside of your long-term plan.

A successful investing plan for retirement will find a balance between these 3 factors.

Many investors use target asset mixes (TAMs)—ranging from conservative to aggressive growth—to help them achieve their goals. Moving along this spectrum increases the percentage of stocks to bonds and short-term investments. A higher percentage of stocks may increase the potential for return, but it also may increase the potential for short-term losses and the volatility of your investments. In contrast, increasing the percentage of bonds and short-term cash could potentially decrease losses and swings in your portfolio’s value, but also limit growth. Over time, your asset mix will change due to market performance, and you’ll need to rebalance your portfolio to bring it back into alignment with your targeted mix.

If you’re a Fidelity customer, check out our Planning & Guidance Center to see your current asset mix plus suggestions for your mix.

Data source: Fidelity Investments and Morningstar Inc, 2025 (1926-2024). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only. It is not possible to invest directly in an index. Time periods for best and worst returns are based on calendar year. Standard deviation is a statistical measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviation. Investors may examine historical standard deviation in conjunction with historical returns to decide whether an investment's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but does indicate the volatility of its returns over time. Standard deviation is annualized. The returns used for this calculation are not load adjusted. For information on the indexes used to construct this table, see Data Source in the notes below.1

Balance short-term needs with long-term growth

Once you’ve thought through your retirement goals, income needs, withdrawal needs from your portfolio, time horizon, and risk tolerance, the next step is deciding how to put these choices into practice through your investment choices.

Your asset allocation should support your goals, but these choices can evolve as your income needs, markets, or personal circumstances may change. For many retirees, this includes gradually shifting your portfolio to a more conservative asset allocation over time.

Concurrently, your portfolio should try to balance shorter-term needs with the need for growth over many decades. There is no one strategy to achieve your goals, and you may not be able to achieve all of your goals at once. Working with a financial professional may help you craft and adopt a plan.

Investment options that may support your strategy include:

Target date funds

Target date funds are built around a single retirement endpoint and adjust asset allocation over time, in many cases becoming more conservative over time. For example, they may be slanted more toward stocks when the targeted date is still decades away, and then gravitate more toward bonds or other potentially less volatile investments. These funds might be good for hands-off investors or people who want an approach where the level of risk decreases. Note that Fidelity’s target date funds are meant to be held throughout retirement, but not all target date funds are designed this way.

Target allocation funds

By contrast, target allocation funds invest regardless of age or investing time horizon. They are a mixture of stocks and bonds that could either maintain a neutral mix or adjust over time. For instance, a neutral mix could include 70% stocks, 25% bonds, and 5% of assets held in short-term or money market instruments. An adjusting allocation could achieve a similar mix by gradually shifting within ranges, such as between 50% and 100% stocks and 0% and 50% bonds or short-term money markets.

These funds might be appropriate for investors who want to assign a specific risk level to their investments. If you choose a target allocation fund as part of your retirement portfolio, you should periodically review whether the equity percentage aligns with your needs.

You can research Fidelity mutual fund investments, and find out more about target date and target allocation funds in Viewpoints: Diversification through a single fund.

Inflation-protected assets

Inflation-protected assets such as Treasury Inflation-Protected Securities (TIPS) and real assets such as property you own (or investments in things like real estate and commodities) can help preserve the value of your investments, as inflation is always a concern for retirees.

Fixed income and income-producing investments

Fixed income and income-producing investments such as bonds, bond ETFs, bond ladders, CDs and CD ladders, as well as dividend-paying stocks and income-producing mutual funds can help support discretionary spending and potential emergency needs in retirement.

These investments should not be used as a substitute for planning, but they can help you realize the financial blueprint you’ve already defined.

Create a withdrawal strategy

Determining a sustainable withdrawal rate—how much money you can withdraw from your retirement and other savings without risking the longevity of these funds—is a core element of retirement investment planning.

Generally, Fidelity recommends withdrawing no more than 4% to 5% from your portfolio in the first year of retirement and then adjusting for inflation in subsequent years. This withdrawal rate is likely to have a high degree of success in funding a 30-year retirement, according to Fidelity research.2

Keep in mind, however, that numerous things will affect your sustainable withdrawal rate, such as your own longevity, inflation, and market conditions.

Find out more about withdrawal rates in retirement in Viewpoints: How can I make my retirement savings last?

Manage sequence-of-return risk

Market conditions early in retirement can have an outsize impact on the long-term outcome of your portfolio.

For example, a market downturn early in retirement can significantly diminish your nest egg, especially if you don't reduce your withdrawals with the falling market. In contrast, a strong stock market early in retirement can provide a boost to your portfolio, potentially for decades.

A chart labeled the importance of timing shows hypothetical outcomes in two scenarios, with a starting portfolio of $1 million. In one scenario, the portfolio first experiences a sequence of positive returns, followed by a bear market later in retirement. This portfolio still has a balance of more than $3 million after 30 years in retirement. In the second scenario, the portfolio first experiences negative returns, followed by a bull market later in retirement. This portfolio balance falls to $0 by year 27 of retirement.
Source: Fidelity. Y-axis shows total portfolio value over time as stock market fluctuates and retiree takes withdrawals.  Each scenario experiences the same set of annual returns over a 30-year period, only in inverse order or "sequence." Each aims to withdraw $50,000 per year. The blue-line scenario experiences a sequence of negative returns in its early years. The green-line scenario, in contrast, experiences positive returns in its early years. Returns are hypothetical and for illustrative purposes only, based on assumptions of 6.8% average annual returns and 13% average annual volatility. Hypothetical returns are not intended to predict or project investment results. Your rate of return may be higher or lower than that shown.

A portfolio weighted more toward stocks may be more susceptible to sequence-of-return risk than a lower volatility portfolio, which may be weighted more toward bonds or other fixed income options. Sequence-of-return risk refers to potential portfolio exposure if the market hits a downturn in your initial years of retirement.

Fidelity generally recommends trying to increase expense flexibility prior to and in retirement to reduce sequence-of-return risk; for example, by adjusting withdrawals during market downturns. Cash, cash equivalents, short-term bond ladders, annuities, or securities that pay dividends can also produce cash flow and reduce the need to sell from your portfolio during market downturns.

Asset location

The process of determining the types of accounts to hold your retirement funds is called asset location, which typically refers to putting certain types of investments in the accounts where they make the most sense from a tax perspective.

Generally speaking:

  • Investments that create more taxable income each year might be better kept in a tax-advantaged account, such as a Roth IRA or a traditional IRA.
  • Investments that are more tax-efficient can go into a taxable account, such as a brokerage account.

As you approach retirement, it’s important to think about how asset location intersects with the timing of required minimum distributions (RMDs). For people born before 1960, RMDs must begin once you reach age 73. For people born in 1960 or later, RMDs must begin once you reach age 75. While RMDs shouldn’t drive your investment decisions, they do affect how and when assets are taxed, which consequently may affect which assets are held in which types of accounts.

Because RMDs are legally required withdrawals based on calculations by the Internal Revenue Service (IRS) based on your age and balances of your tax-deferred accounts, thought should be given to how the RMD will affect your individual tax situation as well as short- and long-term growth of your portfolio.

RMDs can also present planning opportunities. For example, if your portfolio has moved away from your target asset allocation, an RMD could help you rebalance your portfolio by selling assets that have become overweighted.

Find out more about asset location in Viewpoints: Are you invested in the right kind of accounts?

By coordinating asset location with RMD withdrawals you can help smooth out potential tax volatility while helping to provide more consistent after-tax income in retirement.

Stay the course

Finally, Fidelity advises against reacting to short-term market volatility with major portfolio changes. Instead, we suggest sticking to the financial plan you create prior to retirement. This is especially true if your financial situation, time horizon, and risk tolerance remain unchanged. Periodic reviews and smaller adjustments are preferable to frequent, large-scale changes.

A well-constructed investment plan that’s regularly reviewed and consistently applied can help give you confidence both in the period leading up to retirement and throughout retirement.

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1. Important information about performance returns. Performance cited represents past performance. Past performance, before and after taxes, does not guarantee future results and current performance may be lower or higher than the data quoted. Investment returns and principal will fluctuate with market and economic conditions, and you may have a gain or loss when you sell your assets. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. *The above example (of various asset allocations) is for illustrative purposes only. Asset mix performance figures are based on the weighted average of annual return figures for certain benchmarks for each asset class represented. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various indexes from 1926 through 12/31/24 data available from Morningstar. *The above example (of various asset allocations) is for illustrative purposes only. Asset mix performance figures are based on the weighted average of annual return figures for certain benchmarks for each asset class represented. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various indexes from 1926 through 12/31/24 data available from Morningstar. Note: International stock represented by IA SBBI US Large Stock TR USD 1926–1969 (IA SBBI US Large Stock TR USD was used to represent international stocks prior to 1970), MSCI EAFE 1970–2000, MSCI ACWI Ex USA 2001–12/31/24. Domestic stocks represented by IA SBBI US Large Stock TR USD Ext 1926–1986, Dow Jones U.S. Total Market 1987–12/31/24. Bonds represented by U.S. Intermediate-Term Government Bond Index 1926–1975, Bloomberg U.S. Aggregate Bond 1976–12/31/24. Short term represented by 30-day U.S. Treasury bills 1926–12/31/24. Although past performance does not guarantee future results, it may be useful in comparing alternative investment strategies over the long term. Performance returns for actual investments will generally be reduced by fees and expenses not reflected in these investments' hypothetical illustrations. †Standard deviation does not indicate how the securities actually performed but indicates the volatility of their returns over time. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. The chart does not represent the performance of any Fidelity fund. You cannot invest directly in an index. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. US Treasury bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate. The purpose of the asset mixes is to show how asset mixes may be created with different risk-and-return characteristics to help meet an investor’s goals. You should choose your own investments based on your particular objectives and situation. Remember that you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. Before investing in any investment product, you should consider its investment objectives, risks, and expenses. This material has been prepared for informational purposes only and is not to be considered investment advice or a solicitation for investment. Information contained is as of the period indicated and is subject to change. Market indexes are included for informational purposes and for context with respect to market conditions. All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Review the definitions of indexes for more information. Please note an investor cannot invest directly into an index. Therefore, the performance of securities indexes do not incorporate or otherwise reflect the fees and expenses typically associated with managed accounts or investment funds. IA SBBI US Large Stock Index tracks the monthly return of S&P 500®. The history data from 1926 to 1969 is calculated by Ibbotson. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data. MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the US & Canada. MSCI ACWI (All Country World Index) ex USA Index is a market capitalization-weighted index designed to measure the investable equity market performance for global investor. 2. Analysis examined 865 completed 28-year planning horizons, the first of which began on January 1, 1926 and the last of which began on January 1, 1998, and ended on December 31, 2025. Assumes the maximum sustainable withdrawal rate at the beginning of each assumed retirement year for a balanced portfolio of 50% stocks, 40% bonds, and 10% cash. Withdrawal rates and portfolio returns are pre-tax and use the historical rate of inflation. Hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Stocks, foreign stocks, bonds, and short-term investments are represented by total returns of the IA SBBI US Large Stock TR USD Ext 1/1926-1/1987, Dow Jones Total Market from 2/1987-12/2025; IA SBBI US Large Stock TR USD Ext 1/1926-12/1969, MSCI EAFE 1/1970-11/2000, MSCI ACWI Ex USA GR USD 12/2000-12/2025; US Intermediate -Term Government Bond Index from 1/1926 - 12/1975, Barclays Aggregate Bond from 1/1976 - 12/2025; IA SBBI US 30 Day TBill TR USD from 1/1926 - 12/2024, and Bloomberg Short Treasury 1-3M 1/2025 - 12/2025. Past performance is no guarantee of future results. Portfolios were rebalanced at the end of every month. No transaction costs were assumed for rebalancing, nor were any fees included. These costs would reduce portfolio returns. Neither asset allocation nor diversification ensures a profit or guarantees against a loss. All indexes are unmanaged. You cannot invest directly in an index. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes. Find out more in Viewpoints: How can I make my retirement savings last? Sources: Morningstar EnCorr, Fidelity Investments, as of December 31, 2025.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Investing in bonds involves risk, including interest rate risk, inflation risk, credit and default risk, call risk, and liquidity risk.

Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate of your CD may be higher or lower than prevailing market rates. The initial rate on a step rate CD is not the yield to maturity. If your CD has a call provision, which many step rate CDs do, please be aware the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may be confronted with a less favorable interest rate at which to reinvest your funds. Fidelity makes no judgment as to the credit worthiness of the issuing institution.

Lower yields - Treasury securities typically pay less interest than other securities in exchange for lower default or credit risk.

Interest rate risk - Treasuries are susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.

Call risk - Some Treasury securities carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.

Inflation risk - With relatively low yields, income produced by Treasuries may be lower than the rate of inflation. This does not apply to TIPS, which are inflation protected.

Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.

​As with all your investments through Fidelity, and in connection with your evaluation of the security, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, and financial situation. Fidelity is not recommending or endorsing this investment by making it available to its customers.

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