The traditional 60/40 portfolio, 60% stocks and 40% bonds, has been the default retirement allocation for decades. Charles Schwab’s Modern Wealth Survey 2025 found that 42% of Americans believe that mix is outdated, and the skepticism is sharper among younger investors. 46% of Gen Z and 46% of Millennials agree the model no longer works, compared with 39% of Gen X and 35% of Boomers. The bigger number is the consensus on what comes next: 67% of Americans say successful investing today requires looking beyond stocks and bonds.
The macro backdrop explains why. The 10-year Treasury yields 4.35% as of April 27, 2026, which sounds attractive until inflation, duration risk, and the 2022 bond drawdown enter the picture. Consumer sentiment sits at 53.3 as of March 2026, deep in pessimistic territory. The VIX recently spiked to 31.05 on March 27, 2026 before settling back to 18.02. Pre-retirees who watched bonds and stocks fall together are looking for diversification that actually diversifies.
What Americans Actually Hold
The Schwab survey breaks down the average portfolio into pieces that already look nothing like 60/40. Stocks make up 25%, mutual funds 13%, bonds 8%, ETFs 6%, real estate 7%, cryptocurrency 10%, alternatives 3%, options and futures 3%. Bonds at 8% is the headline. Investors have already migrated, even if their stated allocation targets have not caught up. 45% express interest in owning alternatives, and the survey points to plans to increase crypto, alternatives, and real estate exposure over the next 20 years.
The Income Replacement Framework
For pre-retirees focused on cash flow, the replacement for the bond sleeve typically draws from three buckets: dividend-paying equities, REITs, and covered call strategies. The logic is simple. Bonds were held for income and stability. Dividend equities deliver income with growth. REITs deliver real-estate-linked yield. Covered calls convert equity volatility into premium income. Three names illustrate how the building blocks differ.
Johnson & Johnson (NYSE:JNJ | JNJ Price Prediction) anchors the defensive dividend role. The board approved a 3.1% increase to $1.34 quarterly, marking 64 consecutive years of dividend growth. Yield sits at 2.29%, below the Treasury, but the stock has returned 10.66% year to date and 50.7% over the past year. Q1 2026 revenue rose 9.9% to $24.06B, with adjusted EPS of $2.70.
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Procter & Gamble (NYSE:PG) plays the same role with a higher current yield of 2.85%. PG just declared a $1.0885 quarterly dividend, its 70th consecutive annual increase. Beta of 0.403 means the stock moves less than the broader market, the closest approximation a stock offers to the volatility profile of an investment-grade bond.
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Realty Income (NYSE:O) handles the REIT slot and the income-frequency piece. The yield is 5.08%, paid monthly, with a current rate of $0.2705 per share. The portfolio holds 15,542 properties with Q4 2025 occupancy at 98.9%. The stock has gained 14.18% year to date. For an investor used to bond coupons twice a year, a monthly check from net-lease real estate is the most direct substitute.
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What This Means For Pre-Retirees
- The bond sleeve in the average portfolio sits near the survey average of 8%, decide whether that reflects your target or drift.
- With the 10-year Treasury at 4.35%, a blended dividend-equity and REIT sleeve targeting 3% to 5% with growth may serve better than a static bond position.
- A REIT like Realty Income carries equity volatility, which pairs differently with lower-beta dividend growers than a one-for-one bond swap would suggest.
Data Sources
- Schwab Modern Wealth Survey 2025: 60/40 skepticism by generation, average portfolio composition, alternative-asset interest.
- Federal Reserve Economic Data (FRED): 10-year Treasury yield, VIX, University of Michigan Consumer Sentiment.
- Company filings and Alpha Vantage: JNJ, PG, and Realty Income dividend histories, yields, and Q1 2026 results.
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