With equity valuations stretched, bond returns barely positive after accounting for inflation, and volatility beginning to re-emerge, advisors are rethinking how to structure portfolios for clients entering the crucial pre-retirement window. For investors within roughly ten years of retirement—or those who have just crossed that threshold—the sequencing of returns has become especially important. Even a short period of negative or low real returns can meaningfully affect the long-term sustainability of withdrawals.
Market risk has broadened across asset classes in recent months. Equities have shown heightened sensitivity to earnings downgrades and geopolitical stress, while credit markets have experienced widening spreads, particularly among lower-quality issuers. At the same time, defensive sectors have underperformed despite rising volatility, an unusual and concerning signal. For near-retirees who depend on stable income and limited drawdowns, this combination of factors has pushed advisors to adopt more intentional, risk-aware positioning.
Real bond returns pose an additional challenge. Although nominal yields may look attractive, inflation has persistently eroded fixed-income purchasing power, especially in the short and intermediate maturities favored by retirees. As a result, many advisors are reconsidering the traditional 60/40 framework and incorporating tools such as buffer ETFs, multi-asset income strategies, and more selective duration and credit exposures.
A growing number of advisors are gravitating toward what might be called “volatility-controlled income.” Instead of relying solely on bonds or traditional equity income strategies, they are blending income-generating approaches designed to temper downside risk. Covered-call ETFs have become popular for their ability to produce steady cash flow while dampening volatility, while structured outcome ETFs offer predefined buffers that help protect capital during turbulent periods. At the same time, there is renewed emphasis on higher-quality credit with shorter duration to reduce sensitivity to rate fluctuations. The unifying theme is clear: generate income while managing risk deliberately.
Preserving purchasing power during the first decade of retirement has also become a priority, given how sensitive early withdrawal years are to negative real returns. Advisors are therefore increasing exposure to real assets, including TIPS, commodity-linked strategies, infrastructure equities, and real-estate income vehicles with inflation-linked characteristics. The objective is not to chase performance but to ensure that clients’ spending power holds up against a persistent inflation backdrop.
Finally, many advisors are elevating the role of cash and short-term Treasuries as a dedicated “flexibility bucket.” Allocations to money markets, ultra-short Treasuries, and high-quality short-term bond ETFs are rising, both to provide a reservoir of dry powder for opportunistic rebalancing and to preserve optionality if elevated rates continue to support positive real returns.
In sum, advisors navigating today’s environment for near-retirees are increasingly focused on risk-aware income generation, inflation resilience, and tactical flexibility—an approach shaped as much by current market stresses as by the long-term demands of retirement sustainability.
