This Simple 401(k) Setting Most People Have Never Touched

For most people, their plan might be to configure their 401(k) once, pick their funds, and walk away. Fast forward some years later, and they assume the portfolio is still set up the way they left it. The challenge is that it almost certainly is not sitting in the exact same way as the last time they worked.

How a Bull Market Quietly Rewrites Your Risk Profile

As it stands as of March 25, 2026, the S&P 500 has returned 66.23% over the past five years. What this means for a 60-year-old who set up a 70/30 portfolio (70% stocks, 30% bonds) and never touched it is that the run did not just grow the account. It restructured it. Stocks grew far faster than bonds, so the equity slice expanded while the fixed-income slice shrank. A 70/30 portfolio left unattended during a strong multi-year bull run can drift toward 85/15. That is a fundamentally different risk exposure than the one the investor chose.

At 60 or 65, an 85% equity allocation is not inherently wrong, but it should be a deliberate choice. When it happens by accident, the investor often does not realize it until a correction arrives. The VIX, which measures expected market volatility, currently sits near 27 and has risen 41% over the past month, putting it in the elevated uncertainty range. Portfolios that drifted heavily into equities during the calm of late 2025 are now absorbing more turbulence than their owners likely intended.

The One Setting That Fixes This Automatically

Automatic rebalancing is a feature available inside most 401(k) plans. You configure the plan to rebalance either annually or whenever the portfolio deviates more than 5% from its target allocation. When triggered, the plan sells a portion of the overweight asset class and buys the underweight one, restoring the original mix. Most people have never touched this setting.

Vanguard confirms that selling assets to rebalance within a tax-advantaged account creates no capital gains liability. In a taxable brokerage account, the same transaction could generate a significant tax bill, which is why many investors avoid rebalancing there. Inside a 401(k), that friction does not exist.

Why Drift Matters More as You Approach Retirement

A 55-year-old with $1.2 million in a 401(k) who intended to hold 70% equities but now sits at 85% carries more in stock exposure than planned. In a 20% market correction, that unintended overweight results in greater losses than the original allocation would have. With the VIX in the 93rd percentile of its past year’s readings, the environment for that kind of correction is real. The 10-year Treasury yield, meanwhile, currently sits at 4.32%, making bonds meaningfully more attractive than they were during the near-zero-rate era.

Automatic rebalancing also removes the emotional burden of acting during a downturn. Consumer sentiment sits at 56.4, in pessimistic territory, meaning most people are not in the right mental state to make proactive financial decisions. Automatic rebalancing removes the need to act. The plan executes without requiring the account holder to log in during a stressful market period.

Where to Find This Setting on the Three Major Platforms

1. Fidelity NetBenefits: Log in, then navigate to Investments> Change Investments. Fidelity does not offer a fully automated drift-triggered rebalancing toggle for all plans, so check whether your specific plan includes it under Investment Options or Plan Settings. If unavailable, set a calendar reminder and manually rebalance annually via the Exchange Investments path.
2. Vanguard: Vanguard’s workplace retirement platform allows rebalancing through the portfolio management section. For accounts using Vanguard Digital Advisor, rebalancing occurs automatically. For self-directed accounts, navigate to your portfolio and use the rebalance tool to reset allocations to your target mix.
3. Empower: Log in, click Transactions, then select Rebalance My Investments. From there, you can set a recurring rebalancing schedule or establish a drift threshold that triggers an automatic rebalance when any asset class moves more than a set percentage from target.

Three Steps to Take This Week

1. Log in to your 401(k) and check your current allocation against the target you originally set. If you have not reviewed it in more than two years and equities have outperformed, assume it has drifted.
2. Enable automatic rebalancing if your plan offers it, using either an annual schedule or a 5% drift threshold. Both approaches are standard and widely recommended by plan providers, including Fidelity and Vanguard.
3. If your combined household income is near or above the first IRMAA threshold ($109,000 for single filers in 2026), confirm with a fee-only advisor that your rebalancing strategy does not inadvertently push modified adjusted gross income above that line through other account activity. Medicare premium surcharges, such as Part B, can add $81.20, and Part D can add $14.50 (both monthly) or more per person per month once that threshold is reached.