Risk in retirement planning isn’t just about choosing between conservative and aggressive investments. We’ve discovered that most pre-retirees and retirees are making a critical mistake when it comes to risk management – they’re taking too much risk with money they don’t need to, while missing opportunities to protect their downside.
The Perfect Amount of Risk: Less Than You Think
During our recent educational seminars across the community, we always start with this fundamental question: “How much risk should you be taking with your money?” Most people expect a complex answer involving risk assessments and portfolio allocation models. However, the correct answer is surprisingly simple: no more than you have to in order to accomplish all your goals.
This revelation often surprises our seminar attendees. We recently worked with a retiree who had accumulated $3 million, almost entirely invested in cryptocurrency ETFs. When this client sent us his portfolio for review, he had blacked out all his holdings because, as he explained, “the last time I told people exactly what I was invested in, I lost like 20%.”
When Success Becomes Your Biggest Risk
This client’s situation illustrates a common problem we encounter. He wanted to travel, gift education funds to his grandchildren, enjoy dining out, and spend about $10,000 annually on wine. After walking through his complete retirement vision, we realized something crucial: he already had enough money to accomplish everything he wanted to do.
The conversation became enlightening when we kept asking, “What else do you want to do?” Eventually, he responded with frustration, “I don’t want to do anything else, all right? You know what I want to do. Stop asking me.”
That’s when we knew we had made our point. This client was invested riskier than anyone who had ever walked through our doors, yet based on his goals, he only needed his portfolio to outpace inflation. Nothing more.
The Critical Truth About Risk in Retirement
Here’s what we explained to this client, and what we share at every educational seminar: When you’ve saved most of what you’re going to save, losing money hurts you more than making money helps you.
For this retiree, a 20% portfolio loss would mean crossing items off his retirement wish list – no more wine, no more frequent dining out, reduced travel. But a 20% gain? It wouldn’t improve his lifestyle at all because he was already frustrated when we asked about additional goals.
This is why we say “boring is a blessing.” When you’ve done enough, you’ve earned the right to take your chips off the table and enjoy a smoother ride.
Understanding the Two Ditches
We often talk about the “two ditches” that derail retirement plans. On one side, there’s the greed ditch – where investors fall prey to “fear of missing out” and take unnecessary risks. On the other side lies the fear ditch – where retirees become so conservative they can’t keep pace with inflation.
The key is finding the middle ground. For this client, we didn’t eliminate his crypto investments entirely. Instead, we helped him understand that he could keep 10% of his portfolio in higher-risk investments for enjoyment while protecting the majority of his wealth. As we told him, “You’ve made yourself wealthy. Let us help you stay wealthy for the rest of your life.”
The Income Protection Strategy That Changes Everything
During our seminars, we also address income planning, which reveals another surprising truth about risk. Many attendees express envy when they hear about pension holders, wishing they had guaranteed income. However, what most people don’t realize is that anyone can create their own pension using annuities.
We walked through a powerful example with our seminar attendees. Consider two retirees, both with $1 million portfolios:
Retiree A (Traditional Approach):
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- Takes 4% withdrawal ($40,000 annually)
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- Invests conservatively to protect income stream
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- Earns 6% on average
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- After 20 years: approximately $1.5 million remaining
Retiree B (Income Protection Strategy):
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- Uses $560,000 to purchase guaranteed $40,000 annual income
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- Invests remaining $440,000 more aggressively
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- Earns 9% on the remaining funds (possible because income is guaranteed)
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- After 20 years: approximately $2.5 million remaining
The difference? One million dollars. The retiree who “gave up” upside potential by guaranteeing income actually created significantly more wealth because they could afford to take appropriate risk with their remaining funds.
Making the Math Work for You
We made our seminar attendees pull out their calculators to see compound interest in action. The difference between earning 6% and 9% on $440,000 over 20 years is staggering. As we joked, “This calculation is going to wreck your lives because now you’ll think twice about that $10 Starbucks drink, knowing it could be worth $400 in 20 years.”
This demonstrates why retirees with pensions often live the good life – they have the freedom to take calculated risks because their basic income is protected.
Our Recognition and Commitment
Best Financial Planner in Woodstock, GA for 2023, 2024, and 2025
We have built our reputation on providing comprehensive, personalized retirement planning that addresses all three pillars of retirement success: taxes, income, and risk. Our team of Certified Financial Planners (CFPs) has been recognized throughout the Atlanta community for our educational approach and commitment to helping clients build, protect, and grow income to get them to and through retirement. We believe in meeting clients where they are, understanding their complete financial picture, and creating strategies that align with their actual goals rather than generic portfolio models.
Take Action on Your Risk Management Strategy
The biggest thing this client didn’t know wasn’t how to invest better or how much risk he was taking. The biggest thing he didn’t know was that he had already done enough. It’s difficult to know when you’ve reached financial security without the proper tools, expertise, and experience.
If this story resonates with you, or if you’re curious about whether you’re taking the right amount of risk for your situation, we invite you to experience our complimentary 3 Meeting Retirement Planning Process. This comprehensive approach will help you understand exactly where you stand and what steps you need to take to secure your retirement.
Ready to discover if you’re taking too much risk or too little? Visit www.vincentplanning.com or call us at 770-485-1876 to schedule your consultation. You can also Book a ‘Can We Help’ Call to speak with one of our advisors about whether we are the right fit for your needs.
For personalized financial guidance, reach out to Vincent Financial Group today to schedule a consultation.