🇨🇦 Canada · 5 min read · Published 2026-09-07 · Updated 2026-09-07

Written by Jordan Reeves · Editorial review: automated source and figure checks (how we check this)

Sources last verified: 2026-09-07

How Should I Rebalance in Retirement?

Through the withdrawals you were making anyway, wherever that is possible. Taking the year's income from whichever asset class has grown beyond its target restores the mix without a separate trade and without realising a gain you did not have to realise.

60-SECOND ANSWER

In decumulation, rebalancing is done through the withdrawal itself rather than through separate trades that realise gains.

The answer:: Draw the year's income from the overweight asset class. The withdrawal does the rebalancing at no additional tax cost.
The trap:: Rebalancing by selling in a non-registered account. That realises a capital gain the withdrawal alone would not have.
The recommendation:: Do any residual trading inside registered accounts, where a sale has no tax consequence at all.

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Where the AI summary above gets this wrong

"Rebalance your portfolio whenever an asset class drifts more than five percent from target."

That's surface-true. Here's what it misses:

Threshold rules ignore the withdrawal — In decumulation the annual withdrawal already moves the mix, so a separate threshold trade is often redundant.
A non-registered sale has a tax cost — Rebalancing by trading realises capital gains, which the same rebalancing done through the withdrawal would not.
Registered accounts trade for free — A sale inside an RRSP, RRIF or TFSA has no tax consequence, so residual trading belongs there.

→ See what a realised gain costs at your rate

01 Why withdrawals do the work

A retiree taking income each year is already selling something. Directing that sale at whichever asset class has grown beyond its target restores the mix as a by-product of an action that had to happen anyway.

Over a year with strong equity returns, that means funding the withdrawal from equities. After a fall, it means funding it from fixed income, which also avoids selling equities at a low — the sequence risk this addresses is in retiring into a downturn.

Source: Capital gains (line 12700)

02 What a separate trade costs

Rebalancing by selling inside a non-registered account realises a capital gain, adding to income in that year and potentially to the Old Age Security recovery tax. The same rebalancing achieved through the withdrawal costs nothing extra.

Where trading is genuinely needed, doing it inside a registered account removes the cost entirely, because a sale there has no tax consequence. The location decisions that make this easier are in asset location across accounts.

WORKED EXAMPLE · Try the numbers

Shows: what an amount becomes after your chosen number of years at a fixed return. Ignores: tax, fees, inflation, and any variation in returns from year to year.

Amount today ($)

Years

Return (%/yr)

Value at the end of the period

$57,435

$10,000 left for 30 years at 6% becomes $57,435 — the growth is 83% of the total.

Source: Capital gains (line 12700)

03 Why the calendar beats the threshold

A threshold rule triggers trades on market movement, which in a portfolio being drawn down means trading more often than the drift requires. An annual review, timed to the withdrawal, captures most of the benefit with a fraction of the activity.

Aligning it with the RRIF minimum withdrawal is the practical approach, since that withdrawal is mandatory and its size is known at the start of the year.

Setting the bands in writing while markets are calm is the part that makes any of this hold. A rule agreed in advance is followed in a decline because it was decided when nothing was at stake, whereas a plan to rebalance sensibly when the time comes has never survived contact with a portfolio that has just fallen twenty percent.

Source: Canadian income tax rates for individuals

Rebalancing advice is written for the accumulation phase and then repeated to retirees who are in the opposite situation. Someone still contributing rebalances by directing new money. Someone drawing down rebalances by directing withdrawals. Neither needs to trade.