4 Reasons Balanced Funds Can Be Less Helpful in Retirement

Learn why balanced funds can become restrictive when it is time to start drawing from retirement savings.

Editor's Note: This story originally appeared on Boldin.

Balanced funds — including target-date funds, all-in-one mutual funds, and 60/40 exchange-traded funds — have grown into some of the most widely used investment products in the United States. That popularity is easy to understand.

They are straightforward, diversified, professionally managed, simple to rebalance, and easy to grasp.

For people still building their retirement savings, they can be a strong choice. But once retirement begins, the rules of investing start to change.

After you stop adding to your portfolio and begin taking money out, convenience can conflict with flexibility. That is when some retirees realize a major drawback of all-in-one allocation funds: you do not get to decide what you sell.

That limitation can mean missing opportunities with your money.

Balanced Funds Are Built for Saving, Not Spending

Balanced and all-in-one funds make investing easier by automatically maintaining a target mix of stocks and bonds. For long-term savers, that automation is exactly the appeal. During working years, investors contribute regularly, stay diversified, and let the fund keep the mix on track over time.

In that stage of life, investing is mainly about building wealth through compounding:

• Saving consistently
• Staying diversified
• Managing risk appropriately
• Avoiding emotional decisions
• Letting compounding do its work over time

All-in-one funds are well suited to that phase. A target-date or balanced fund typically:

• Keeps the intended stock and bond mix in place
• Rebalances automatically
• Gradually lowers risk as retirement nears
• Reduces the need to make constant decisions

For many investors, especially those who tend to tinker or react emotionally, that simplicity is very valuable.

Retirement, however, brings a different challenge.

Retirement Changes What a Portfolio Must Do

Once you are retired, your portfolio is no longer just a growth tool. It becomes something much broader:

• Your paycheck
• Your emergency reserve
• Your tax planning tool
• Your healthcare buffer
• Your legacy asset
• Your protection against inflation
• Your source of peace of mind

Just as important, you are no longer only investing. You are also spending. And that makes withdrawals a very different issue.

Why Withdrawals From Balanced Funds Change the Picture

In retirement, your portfolio is not just growing — it is also paying your bills.

Consider a traditional 60/40 allocation fund:

• 60% stocks
• 40% bonds

Now suppose you need $50,000 for living expenses this year. To produce that cash, you sell shares of the fund. But unlike owning separate stock and bond funds, you do not control which holdings are sold.

The fund automatically sells stocks and bonds in proportion. That means you cannot choose:

• “I only want to spend from bonds this year.”
• “I’d rather leave stocks alone while the market recovers.”
• “I want to take gains from equities right now.”
• “I want to avoid selling bonds while they are depressed.”

The structure makes those choices for you.

During the accumulation years, that usually is not a major problem. In fact, automatic proportional rebalancing is one reason these funds work so well for long-term savers.

But in retirement, many households value flexibility as much as simplicity. They may want to adjust withdrawals based on market conditions, tax needs, spending changes, or personal comfort during volatile periods. That is where the limits of all-in-one portfolio structures can become more obvious.

Many Retirees Are Surprised by Proportional Withdrawals

When you sell shares of a balanced fund in retirement, the fund generally liquidates stocks and bonds proportionally. You cannot simply draw from bonds while leaving equities untouched, and many retirees do not realize that at first.

Recently in the Boldin Facebook Group, several Boldin users said they were surprised by how withdrawals from balanced funds work.

One user wrote, “wanted to take the withdrawal from the Bond sleeve, but it took the amount proportionately across the holding… so 60% from Equities and 40% from bonds. This surprised me and I was a bit upset because this means in a bear market I can’t tap just the Bonds as I thought, and it would hasten the sequence of returns.”

Fund mechanics and brokerage platforms can differ, so it is wise to check how your specific fund handles redemptions before assuming you have no choices.

Many commenters recommended moving the money to give themselves more control.

Balanced Funds Can Create Four Real Tradeoffs in Retirement

1. Sequence-of-returns risk

Retirement brings a risk that accumulation portfolios do not fully address: sequence-of-returns risk.

If markets fall early in retirement, withdrawals can permanently damage portfolio longevity because you may be forced to sell assets when prices are down.

That is why many retirees want more control over where withdrawals come from. For example:

• During a stock decline, a retiree may prefer to spend from bonds or cash reserves and give equities time to recover.
• During a bond market slump, they may want to draw from appreciated stocks instead.
• In higher-tax years, they may want to tap taxable assets differently than in lower-income years.
• During uncertain periods, they may want larger cash reserves for emotional comfort.

All-in-one funds do not leave much room for those choices.

2. The emotional side of retirement investing

Retirement investing is not only about maximizing returns. It is also about behavior and confidence.

Many retirees find that investing in retirement feels very different from saving for retirement. Watching markets swing while relying on those same assets for income can be stressful, even for disciplined investors.

Flexibility can help psychologically. Some retirees feel more comfortable when they:

• Keep money in separate “buckets”
• Can choose the source of withdrawals
• Do not have to sell every asset class at once
• Have a plan for different market environments

That sense of choice can matter a great deal.

3. Retirement is about more than investment returns

One common mistake in retirement planning is assuming success depends mostly on portfolio performance. In reality, retirement outcomes are shaped heavily by decisions such as:

• Which accounts to withdraw from first
• When to claim Social Security
• How to approach Roth conversions
• How to manage taxes
• How to handle healthcare costs
• How much spending flexibility exists
• When major expenses occur
• How long the money needs to last

Asset allocation still matters. But in retirement, the bigger issue is often how assets are used, not just how they are invested.

4. Retirement keeps changing

Retirement can last 25 to 35 years, which is long enough for markets, tax rules, spending habits, and goals to shift substantially.

Markets change. Taxes change. Spending changes. Health changes. Goals change. Retirement is not a fixed situation.

Increasingly, retirees want tools that help them adapt without being locked into a proportional 60% stock and 40% bond withdrawal pattern, no matter what is happening in the market.

You cannot always choose to spend only from bonds during a stock downturn, or leave bonds untouched while taking gains from equities. The fund makes that choice for you. Many retirees discover this only after they begin withdrawing money, and some find it more restrictive than expected.

Are All-in-One Funds Wrong for Retirees?

No. Balanced funds are not a bad option for retirees. For many households, all-in-one funds remain a very good solution throughout retirement:

• They reduce complexity
• They promote discipline
• They help prevent overtrading
• They make management easier for older investors
• They reduce allocation mistakes

And proportional selling is not automatically a flaw. Many financial professionals prefer a total-return approach that treats the portfolio as one integrated system.

Still, retirees should understand the tradeoff. The same simplicity that makes all-in-one funds so useful while saving can also create limits when it is time to draw income.