Your Individual Retirement Account (IRA) can help propel you into the fast track when it comes to your retirement goals. Whether you’re planning on retiring a few years or a decade earlier with a chubby or fat FIRE (financial independence, retire early) or if you want to build the largest nest egg possible to put a comfortable, even care-free type of traditional retirement, the investment decisions you make within your IRA could easily set the stage for your golden years.

Indeed, if you’re young, you should be more than willing to take on a bit of risk in stocks to grow your IRA nest egg at a relatively rapid rate. That said, if you’re already past 60 years old and already have a rather fat IRA nest egg, it may be time to revisit your portfolio to ensure that your goals will not stand to be derailed come the next market-wide pullback.

Key Points About This Article

• Taking too much risk in your IRA as you close in on retirement is likely a mistake.
• Underweighting risk and overweighting recession-resilient dividend plays can help you strike a better balance in your 60s.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Stocks are getting hot again. Why soon-to-be retirees should exercise caution with their IRAs

Stocks are heating up again, with the S&P 500 pushing to new highs. With some pundits, most notably Fundstrat’s Tom Lee, looking for the index to hit 6,000 by year’s end, investors of all ages may be inclined to chase the momentum with less regard for risks.

As stocks enter overbought territory, it only makes sense to take a few chips off the table, especially if you’re in your final few years in the labor force. Indeed, the last thing you want to do is risk a retirement that’s on track for a shot at a richer reward that may not make all too much of a difference once you’re finally ready to retire on or even ahead of schedule.

Undoubtedly, overestimating your risk tolerance as you wind down for retirement can be an absolute mistake. Let’s say you’re 60 and hope to retire within three to five years. Though such a timespan is suitable enough to be invested in stocks, you should be very selective with the types of stocks you pick from. The red-hot AI chip stocks, though fast movers, could easily be dragged down most come the next market-wide plunge, perhaps on the back of a recession that few saw coming.

Keep your guard up with your IRA as you enter your 60s.

Indeed, we keep hearing about a soft landing, a lack of recession, and the GDP-driving benefits of the AI boom. However, as most others let their guards down with their IRA portfolios (a brutal mistake in your 60s), it may be a better idea to revisit and rebalance your portfolio such that it won’t let an unforeseen exogenous event halt your retirement plans.

If you’ve all-in on stocks with your IRA, with too much technology exposure amid the AI-driven market rally, perhaps it’s shrewd to consider rotating into some of the more defensive dividend stocks. While such dividend-paying blue chips will still feel the quake of the next market sell-off, at the very least, your IRA will not be in or around the blast zone.

Now, it’s difficult to tell when the next pullback will happen and what will cause it. However, the higher-beta momentum plays tend to fall faster when stock markets begin to come in.

Rebalancing your IRA in your 60s.

As always, there’s no single solution for all soon-to-be retirees. That’s why consulting a financial advisor is a good move before committing to rebalancing activities with your IRA. Either way, if you’re like many investors who have become overconcentrated in the tech stocks atop the market (think those Magnificent Seven companies), it doesn’t seem like all too bad an idea to be underweight them to bring your retirement fund into better balance.

Now, I’m not saying you should sell off the tech stars, especially as they lead the AI revolution. That said, with all the selling activity in the best-in-breed tech names — Warren Buffett, Tim Cook, and other top execs have all been selling Apple (NASDAQ:AAPL) of late, and the questionable valuations (AAPL and other Magnificent Seven stocks boast price-to-earnings (P/E) ratios at the high end of their historical ranges), it makes sense to at least think about taking your winners while there’s still winnings to be had.

In terms of where to rotate the IRA funds, perhaps boring recession-resilient plays, like Warren Buffett staple Coca-Cola (NYSE:KO), makes sense to own as you prepare for all and every scenario to pan out as you near your last few years before retirement. Sure, Coke stock won’t help you upgrade your retirement lifestyle as Apple shares could, especially if Apple Intelligence blows us away.

That said, a defensive dividend payer like Coke can help you keep your guard up once the heavy punches come flying your way.

Perhaps there’s a reason Warren Buffett sold AAPL but not KO.

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