Retirement Planning: Rebalancing your Equity Ratio

The principal of age-based asset allocation is key when thinking of your retirement investment plan. But what does this mean? It simply means becoming more conservative with your equity exposure as you age and near your retirement. 

Many financial experts recommend using this formula for equity allocations when retirement planning:

100 - Your Age = % of Equity Exposure in Your Portfolio

So, 

• If you are 40, your equity exposure should ideally be 100-40 = 60% as per this rule.

• If you are 55, your equity exposure should ideally be 100-55 = 45% as per this rule. 

But here’s the thing, you don’t have to stick to this guideline, primarily because it only takes age into account and fails to consider factors like:

• When you want to retire

• Debt levels

• Health condition

• Income sources

• Dependents

So, a good approach may be to use this as a starting point and then tweak the equity ratio as per your unique needs for retirement planning.

Your asset allocation strategies start shifting from growth to income as your near retirement. Your equity exposure needs to reflect this. 

Here’s why rebalancing your equity ratio is a critical part of financial planning for retirement:

• As retirement nears, focus shifts from wealth building to steady income.

• Rebalancing for relatively safer, fixed-income retirement options may help contribute to capital preservation.

• Reducing equity exposure can help lower the Equity Market risk in your portfolio.

A more conservative approach may be better to avoid sudden shocks near/in retirement.

By now, you must understand why rebalancing equity exposure is key to retirement planning, especially if you don’t want to worry about sudden market shifts close to retirement. 
 

But how do you go about integrating this rebalancing in your retirement plan? Here’s how:
 

Step 1: Define Your Target Equity Allocation For Each Life Stage

When you start retirement planning, make sure to define what’s your target equity allocation for each stage of investing. You can decide on this by evaluating:

• Your age

• Years left until retirement 

• Your retirement income needs

• Your risk tolerance
   

For instance (for illustration purposes only):

• At 40, you may choose to invest 70% in equities and 30% in fixed-income assets due to a longer investment horizon.

• At 50, you may be comfortable with a 50%-50% allocation between debt and equities.

• At 60, you may prefer 30% allocation in equities and 70% in debt.
   

This can become the foundation of your equity rebalancing guide for all of the future retirement planning years. Always remember that there is no ‘Correct Ratio’ as such, but only the one that suits you.

Step 2: Review the Current Equity Ratio in Your Portfolio 

How will you know if your equity exposure is in-line with the target allocation mentioned in your retirement plan? You have to review your current equity ratio and see how your equity mix compares to the target allocation you identified for your age using Step 1. 

Let’s say your ideal target equity to debt ratio at 40 (calculated in Step 1) was 70:30. But due to a equity rally last year, your portfolio now stands at:

• 80% equity

• 20% debt

This means equities are overweight by 10%, while debt investments are underweight by 10% vis-a-vis your retirement plan.

Use retirement calculator to plan your retirement with Tata Mutual Fund
 

Step 3: Reallocate Funds to Rebalance the Mix 

If you notice that your portfolio has drifted away from the target equity ratio, you have to reallocate funds to restore balance into your retirement planning process. This can be done in the following ways:

Sell What’s Overweight

Sell equities if their allocation has become larger than the target allocation as per your retirement investment plan. So, if your target equity allocation at 55 was 50% and currently equities make up 70% of your portfolio, selling may help you:

• Lock-in gains

• Reduce excess risks

• Make sure that the equity ratio is back to the intended level

Buy What’s Underweight 

Use the funds from equity sales to buy more of fixed-income assets that are currently below the target allocation. 

So, let’s say if debt allocations were supposed to be at 50% as per your retirement investment plan when you’re 50, but currently stand at 30%, you may consider making fresh investments. This may help you:

• Restore balance in your portfolio

• Strengthen the underweight asset class

• Review your equity ratio annually: Reviewing your equity ratio once annually helps you understand if it’s well-aligned with your target levels. It also helps you take steps to correct major misalignments which may result from market rallies or slowdowns.
   

• Rebalance if it shifts from the intended levels: A good rule of thumb for rebalancing may be a 5%-7% shift. This means, you may consider rebalancing the equity ratio in your portfolio if it shifts 5%-7% from your intended allocation for that age as per your retirement planning map. Again, this percentage can vary depending on person based on his / her personal choice & requirements.

For a systematic approach to retirement planning, you may consider investing in retirement mutual funds. These are solution-oriented funds that invest in both stocks and bonds, gradually shifting towards lower risk options as retirement nears. 
 

In this category, you may consider options like the Tata Retirement Savings Plan. This is an open-ended retirement solution-oriented scheme having a lock-in period of 5 years or till retirement age (whichever is earlier).
 

You can choose from the following retirement saving plan options under this scheme: 

• Tata Retirement Savings Plan: Conservative Plan

• Tata Retirement Savings Plan: Moderate Plan

• Tata Retirement Savings Plan: Progressive Plan

Let’s have a closer look at these solution-oriented mutual funds for retirement planning:

As on 31st December 2025

 

Retirement planning is all about balancing potential growth with stability. While equities offer growth potential, as you near retirement, you need to hedge the risk of volatility they bring to the table. That’s rebalancing your equity ratio is a key aspect of retirement planning. 
 

To put it simply, this may look like:

• When you are 30-40 years old: Your portfolio can have a higher equity exposure of 60%-70% to drive potential long-term growth.

• When you are 50-55 years old: You may try to lower your equity exposure to about 45%-50% in favour of debt and/or government-backed schemes. 

• When you are 60 years old: The main goal of your equity exposure at this point of retirement planning is simply to offset inflation. So, you may try to keep it limited to 20%-30%, while the rest remains invested in fixed-income assets.

Remember, there is not a fit-all rule. Instead, your target equity ratio and balance depends entirely on your goals, risk tolerance, income needs, and of course, age.

The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.