Financial experts are cautioning individuals planning to retire in 2026 against a significant portfolio risk: an overconcentration in high-flying artificial intelligence (AI) stocks. Personal finance veteran Jean Chatzky highlights that the recent AI boom, which has propelled the stock market to unprecedented levels, may have inadvertently skewed many pre-retirees’ investment portfolios, exposing them to greater risk than intended. She urges a proactive approach to rebalancing to ensure long-term financial security as retirement approaches.
Chatzky, a respected voice in personal finance with decades of experience including roles as an AARP columnist and financial editor at NBC, explains that bull markets often lead to asset allocations becoming misaligned. Investors frequently express intentions to rebalance but often fail to execute, resulting in an overweighting in dominant sectors like technology and AI. This imbalance can leave retirement savings vulnerable to sharp market corrections, undermining carefully constructed financial plans.
The current economic climate, marked by evolving tax legislation and shifts in consumer demand, further complicates the landscape for those nearing retirement. Beyond portfolio rebalancing, Chatzky identifies two powerful strategies for enhancing retirement readiness, particularly for individuals concerned about economic volatility. These include strategically delaying Social Security benefits and extending one’s working career.
Delaying the commencement of Social Security benefits, ideally until reaching age 70, offers a substantial increase in monthly payouts, a critical lever for many retirees. This strategy provides a guaranteed boost to income that can significantly impact financial stability throughout retirement. Concurrently, remaining in the workforce for a longer period allows retirement assets more time to grow and provides additional opportunities for contributions, strengthening overall savings.
Navigating market downturns, especially in the initial years of retirement, presents another critical challenge. Chatzky warns that the traditional “4% rule” for withdrawals can become problematic during periods of market decline. Given that modern retirements are often longer than anticipated, a flexible withdrawal strategy coupled with robust cash reserves becomes paramount to avoid selling assets at a loss.
To mitigate this risk, pre-retirees should consider allocating a substantial portion of their liquid assets, ideally two to three years’ worth of living expenses, into cash or stable fixed-income instruments. This cash buffer provides a crucial safety net, allowing retirees to fund their lifestyle without liquidating long-term investments during market troughs. Furthermore, adjusting withdrawal rates downwards during periods of market weakness is advisable, rather than rigidly adhering to a fixed percentage.
For covering essential expenses, Chatzky advocates for a combination of Social Security benefits and other forms of guaranteed income, such as pension payments or annuities. This approach provides a bedrock of predictable income, reducing reliance on volatile market returns for basic needs and offering greater peace of mind during periods of economic uncertainty.
A common error observed among pre-retirees involves miscalculating future spending needs. The long-held assumption that retirees will spend only 70% to 80% of their pre-retirement income often proves inaccurate. Data suggests that many individuals, particularly in the three years immediately preceding and following retirement, tend to spend more, frequently on “bucket list” experiences like extensive travel or significant home improvements.
This increased initial spending underscores the importance of a thorough and realistic assessment of anticipated post-retirement expenses. Individuals should meticulously review their current cost of living and project how these expenditures might evolve, factoring in both essential needs and discretionary desires. Such detailed financial planning ensures that retirement savings are adequately positioned to support a desired lifestyle without unexpected shortfalls.
