I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?

A seated man in his early 50s smiles and strikes a confident pose in an empty office. He wears a tie but no jacket. — (Image credit: Getty Images)

Question: I'm 51 and my portfolio is up. I'm planning to retire in nine years, at the age of 60, so I want to start moving out of stocks to lower my portfolio risk. Is that smart?

Answer: In the years leading up to retirement, it’s common to start rethinking your investment strategy. And part of that could mean shifting into assets that are less volatile.

But how soon is too soon?

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If you’re 51 years old and are looking at gains in your portfolio, which may be the case based on the market’s performance this year, you may be eager to capture some of those gains and unload some risk, even if you don’t intend to retire for another nine years.

But will dumping stocks at 51 derail your finances long-term? With the right approach, maybe not.

Assess your personal situation

It’s certainly not a bad idea to reallocate assets well ahead of retirement. But the decisions you make should hinge on variables that are specific to you.

Jake Skelhorn, CFP at Spark Wealth Advisors, LLC, says, “On the surface, it’s generally not a bad idea to start shifting some money to more conservative assets like bonds as you get within 10 years of retirement.”

However, he says, there are other factors that should influence your decision. These include how much you’ve saved for retirement already, how large a nest egg you anticipate needing, and what your capacity for risk is.

“For example,” he says, “if all you need is a conservative 4% to 5% rate of return for the next nine years to reach your retirement number, it may be prudent to start allocating to bonds now. On the other hand, if a 7% to 8% rate of return is required, then you might stay all in stocks until about three to five years out for a better chance of hitting your goal, assuming you’re comfortable with the potential risks.”

Think about your income needs

It’s a common strategy to shift away from stocks in the lead-up to retirement. Rather than focus on whether you’re doing that “too soon” or not, Skelhorn recommends thinking about how many years of expenses you’re looking to cover with non-stock assets.

“When building retirement plans and portfolios that support them for my clients, I prefer to communicate their bond allocation as ‘years of expenses’ rather than a percentage of their portfolio,” he explains.

“If someone has a $2 million portfolio, needs to withdraw $100,000 per year for living expenses, and is comfortable with five years’ worth in bonds to fall back on during the next market downturn, then their overall allocation would be approximately 75% equities, 25% bonds.”

Of course, you may prefer to have more than five years’ worth of expenses covered by the bond portion of your portfolio. That’s okay, too, Skelhorn says.

“Everyone’s situation is different,” he insists. “Some are more risk-averse and would sleep better with six to eight years in bonds. Some are okay with three years. It just depends.”

That said, Skelhorn cautions that erring too much on the side of caution could cause your portfolio to lose to inflation.

“Over a decades-long retirement, it’s crucial to protect purchasing power — especially for health care costs, which tend to rise faster than general inflation,” he says. For this reason, a healthy allocation is key, and it’s important not to get too aggressive unloading stocks ahead of retirement.

Consider alternative assets

Retirement savers tend to divide their portfolios into a few distinct buckets — stocks, bonds, and cash. But Daniel Gleich, CEO & President at Madison Trust Company, thinks that if you’re going to start moving away from stocks ahead of retirement, it’s a good idea to look at alternative assets.

“The consideration [to scale back on stocks] isn’t just about age, but also risk tolerance, income needs, and overall retirement goals,” he says. “However, there is no one-size-fits-all percentage for how much of a portfolio should be invested in stocks. That’s why some investors explore diversification strategies beyond the standard mix of stocks and bonds.”

As Gleich explains, investors can reduce dependence on stock market performance alone by investing in alternative assets such as real estate and precious metals.

Gold, for example, has long been considered a good inflation hedge due to its tendency to hold its value over time. The danger of scaling back on stocks is ending up with a portfolio that lags behind inflation, but gold and precious metals could help mitigate that risk.

Ultimately, says Gleich, reducing stock exposure well ahead of retirement isn’t necessarily a poor choice, especially if you’ve crunched the numbers and/or can work with a financial adviser to make sure that decision doesn’t derail any of your goals.

The key, he says, is to ensure that your savings can both last and keep pace with rising costs. And you may be able to pull that off without a problem, even if your portfolio is a lot less stock-heavy than it is today. If that’s what enables you to sleep better at night, there’s nothing wrong with that.

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.