Investment Planning

Most retirees should keep one to three years of spending in cash or short-term low-risk assets, but the right amount depends on guaranteed income, spending flexibility, and how the rest of the portfolio is structured. Cash in retirement solves timing risk, not growth risk: it lets you avoid selling long-term investments during market drops and gives the portfolio time to recover, which is the core defense against sequence-of-returns risk in the first five years. Too little cash forces poorly timed withdrawals; too much erodes purchasing power and reduces compounding. A retiree with a large pension or substantial Social Security may need less; one whose income comes primarily from a portfolio may need more. Cash strategy should evolve over retirement, not be set as a static percentage, and should be coordinated with withdrawals, allocation, and tax planning rather than managed as a standalone decision.

In retirement, the right asset allocation is no longer just a stock-bond mix. It is an income structure that can keep funding withdrawals when markets are volatile. A layered portfolio with near-term liquidity (cash and short bonds for one to three years of spending), mid-term stability (intermediate bonds and dividend-paying equity), and long-term growth (broad equity exposure) reduces forced selling during down markets and improves plan durability under sequence risk. Tax-aware withdrawal sequencing is part of allocation design because gross returns matter less than the after-tax income the household actually spends. The right allocation is the one that produces reliable income, absorbs early-retirement market stress, and preserves flexibility as your tax and spending profile evolves, not whatever a static stock-bond formula recommends for someone your age.

The period from about five years before retirement to five years after is often called the retirement red zone, because a large market decline then does the most permanent damage: you are withdrawing instead of contributing, so losses get locked in by selling. A glide path is the planned change in your stock and bond mix across that window. The research-backed approach is not simply to get more conservative every year forever. Work by Wade Pfau and Michael Kitces found that portfolios starting retirement more conservatively and then gradually rising in equity exposure held up better in bad sequences than static or steadily declining allocations. In practice, that means building two to five years of planned withdrawals in cash and short-term bonds before your retirement date, keeping your lowest equity allocation in the first few years of retirement, then letting stocks drift back up once the sequence risk window has passed. Do the de-risking inside IRAs and 401(k)s first, where selling stocks creates no capital gains. And do not overdo it: a 62-year-old couple may need the portfolio to last 30 years, and inflation at 3% cuts purchasing power by more than half over that span.

Duration is a measure of how sensitive a bond or bond fund is to changes in interest rates, expressed in years. The practical rule: for every 1 percentage point rise in interest rates, a bond fund's price falls by roughly its duration in percent, and it rises by roughly that much when rates fall. A fund with a 6 year effective duration loses about 6% of its price if rates rise 1%, and a fund with a 17 year duration loses about 17%. This is why 2022 hit bond investors so unevenly: short term bond funds with durations under 2 years lost low single digits while long term Treasury funds with durations near 17 years lost close to 30%. Duration is not the same as maturity, though they are related. Every bond ETF publishes its effective duration on its fact sheet, and it is the first number a retiree should look up before deciding that a holding is safe.

A concentrated stock position, typically defined as more than 10% to 20% of a portfolio in a single name, usually built up through employer stock, restricted stock units, or a decades-old inherited holding with a low cost basis, creates two separate problems: the underlying company risk and the tax cost of fixing it. There is no single correct way to unwind one, but there are six real tools, and the right combination depends on the size of the position, the embedded gain, your income in a given year, and how much company-specific risk you can tolerate while you work through it. Spreading the sale over several tax years to stay under capital gains bracket thresholds, pairing sales with tax-loss harvesting elsewhere in the portfolio, using an exchange fund to swap the stock for a diversified basket without triggering a sale, gifting appreciated shares to a donor-advised fund or charitable trust, hedging with options while you plan the exit, and, for the right estate, simply holding until death for a step-up in basis, are the primary levers. Most households that fix a concentrated position well use two or three of these together over multiple years rather than one clever trick in a single year.

Each form of equity compensation is taxed on its own schedule, and diversifying well starts with knowing which one you hold. RSUs are taxed as ordinary W-2 income on the full value when they vest, so the tax is owed whether or not you sell, and continuing to hold vested RSUs is economically identical to taking a cash bonus and buying your employer's stock with it. Employers usually withhold federal tax on RSUs at the 22% supplemental rate (37% on supplemental wages above $1 million), which under-withholds for anyone in the 32% bracket or higher. Nonqualified stock options create ordinary income on the spread when you exercise. Incentive stock options create no regular tax at exercise, but the spread can trigger the alternative minimum tax, and you get long-term capital gains only if you hold the shares two years from grant and one year from exercise. ESPP shares bought at up to a 15% discount have similar qualifying and disqualifying disposition rules. A simple default works for most people: sell RSUs at vest, sell ESPP shares on a set schedule, exercise and sell options according to a written plan, and ask of every share you hold whether you would buy it today with cash. If you are an insider, use a 10b5-1 plan so blackout windows do not freeze your diversification.

A traditional index fund or ETF buys one security that tracks an index. Direct indexing buys the individual underlying stocks directly in your own account in roughly index-matching weights, which costs a bit more in complexity but opens up loss harvesting at the individual stock level rather than only at the fund level. In a typical year some stocks in an index fall even while the index as a whole rises, and a direct index account can realize those individual losses to offset gains elsewhere in your portfolio, while a single ETF only produces a loss to harvest when the entire index is down. For a $2 million taxable account, this can generate a meaningful stream of harvestable losses, particularly in the first year or two after funding the account, though the benefit shrinks over time as the easy losses get harvested and fades further once the account has been fully invested through a full market cycle. The added cost is typically a modest additional fee over a comparable index ETF, more complex tax reporting with potentially hundreds of individual holdings, and less ability to donate or gift the position as a single clean security. For most households, direct indexing earns its cost only above a certain account size in a taxable account with a high marginal tax rate; below that, a plain low-cost index fund usually wins on simplicity without giving up much.

Seven types of investments are a structurally poor fit for a taxable brokerage account: taxable bonds and bond funds, multi-asset funds like target-date and balanced funds, actively managed equity funds, high-dividend-paying stocks and dividend-focused funds, REITs and REIT funds, commodities futures funds, and alternatives funds. What they share is a lack of control: each one generates income or forces a capital gain on a schedule you don't set, whether that's a bond's interest payment, a REIT's mandatory distribution, or an actively managed fund selling appreciated holdings to meet shareholder redemptions. None of this means you shouldn't own these investments. It means they belong in a tax-deferred account like a traditional IRA or 401(k), or a Roth, where that income and those gains don't generate an annual tax bill. Your taxable account is the better home for broad-market index funds, individual stocks you control the sale timing on, and, if you're in a high bracket, municipal bonds.

There is no single product that inflation-proofs a retirement; protection comes from how the whole plan is built. The most powerful and most overlooked defense is keeping enough of your portfolio in stocks, because over decades equities have been the most reliable way to grow money faster than prices rise. Around that core, specific tools handle specific jobs: Treasury Inflation-Protected Securities (TIPS) and I bonds give you a slice of principal that rises with the Consumer Price Index, Social Security adjusts every year (the 2026 cost-of-living increase is 2.8 percent), and a paid-off home or income that can rise with rents helps too. The quiet lever almost no one talks about is spending flexibility, the ability to ease off in a bad year is itself a form of inflation protection. The real risk is not a single bad year; it is 25 years of 3 percent compounding while your income stands still.

A 60/40 portfolio holds 60% in stocks and 40% in bonds, the historical 'balanced' allocation used as the default for moderate-risk investors and many retirement portfolios. The premise is that stocks provide long-term growth while bonds provide ballast (lower volatility and income). The 60/40 worked exceptionally well from the early 1980s through 2021 because falling interest rates supported both stock and bond prices simultaneously. In 2022, both stocks and bonds fell sharply at the same time, the worst joint loss in modern history, calling the diversification premise into question. The 60/40 still has structural merit (bonds remain less correlated with stocks than alternatives), but modern variants often add diversifying assets (TIPS, real estate, alternatives) and tilt allocations based on the specific household's withdrawal horizon, tax structure, and income needs. For most retirees, the question isn't 'is 60/40 dead?'. It's 'does 60/40 still match my situation?' The answer depends on your spending flexibility, income from Social Security/pensions, and time horizon.