> How do we rebalance to get to the
recommended 50/50 stocks and bonds and what bond funds are recommended at vanguard or fidelity?
First, have you decided on your own personal investment strategy?
This may help:
https://investor.vanguard.com/calculator-tools/investor-questionnaire/I don't believe 50/50 is a
universally accepted/recommended strategy or allocation.
(Personally I'm more of a 90/10 person during accumulation, and might move to 80/20 or 70/30 as I approach retirement.)
> do we somehow dollar cost average by buying a few thousand of bonds every month, plus redirect all future retirement contributions to bond funds?
This may depend on your desired asset allocation, and if you want to reach that within 3 years. For example, if you decide you really do want to move from 100/0 to 50/50 over 36 months, each month you could sell 1.4% of your stock holdings, and buy the equivalent amount of bonds.
> Also is the percentage of bond funds different/ less since we also will both receive government pensions?
Ah, so again the questionnaire above may help you.
> Is the rule of thumb two years of living expenses in cash?
Overall you're close enough to retirement that you probably want to take the time to move beyond "rule of thumb" and determine for yourself what you'll need. Given that you've been comfortable with 100% stocks so far, your risk tolerance is probably very high (that is, you can stomach the temporary downs.) But it still helps to have
some bonds that should be more stable, so that in the case of market turbulence, you can sell bonds instead of stocks, and avoid selling stocks that have lost a lot of value. You'll also want to factor in your pensions to determine what your remaining "year of living expenses" number is, as it could mean you could keep less in cash/bonds than someone else might need.
You might want to read about something called an "Reverse Equity Glide Path." That is, you may shift to more bonds for the short term, but once you're past the early stages of retirement, you can shift back towards a higher percentage of equities/stocks in your portfolio.
https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/https://www.thebalance.com/what-is-an-equity-glide-path-2388560