Retirement Read Time: 3 min

Your Changing Definition of Risk in Retirement

During your accumulation years, you may have categorized your risk as “conservative,” “moderate,” or “aggressive” and that guided how your portfolio was built. Maybe you concerned yourself with finding the “best-performing funds,” even though you knew past performance does not guarantee future results.

What occurs with many retirees is a change in mindset—it’s less about finding the “best-performing fund” and more about consistent performance. It may be less about a risk continuum—that stretches from conservative to aggressive—and more about balancing the objectives of maximizing your income and sustaining it for a lifetime.

You may even find yourself willing to forego return potential for steady income.

A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.

Let’s examine how this might look at an individual level.

Still Believe

During your working years, you understood the short-term volatility of the stock market but accepted it for its growth potential over longer time periods. You’re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.¹

But you’ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it’s not so much about managing your exposure to stocks, but considering new strategies that adapt to this new landscape.¹

Shift the Risk

For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.

1. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.This is a hypothetical example used for illustrative purposes only.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Please Leave Home Without It

Please Leave Home Without It

Concerns over identity theft continue to grow, especially with data breaches at major companies and financial institutions.

Don’t Let Bad Financial Habits Haunt Your Retirement

Don’t Let Bad Financial Habits Haunt Your Retirement

When it comes to retirement, some people can quit working and fall immediately into good money habits that they’ve practiced for years.

You Can DIY Guaranteed Income with These 3 Tips

You Can DIY Guaranteed Income with These 3 Tips

You’ve probably heard of DIY or do-it-yourself. From home improvement to knitting to repairing your own electronics, the DIY mentality can be applied to almost any endeavor. But did you know it’s possible to DIY guaranteed income for your retirement? With an income annuity, you can.

 

Have A Question About This Topic?







Thank you! Oops!

A Penny Saved is Two Pennies Earned

Here are some simple and inexpensive energy-saving tips that may help you save money.

Tax-Advantaged Health Care Planning for Retirement

Heading into retirement with confidence is easier if your planning includes steps to minimize taxes, especially as it relates to health care planning.

Can Group, Private Disability Policies Work Together?

Loss of income from disability has the potential to cause financial hardship. Disability insurance can help.

View all articles

What Is the Dividend Yield?

This calculator helps determine your pre-tax and after-tax dividend yield on a particular stock.

How Much Home Can I Afford?

With a few simple inputs you can estimate how much of a mortgage you may be able to obtain.

Impact of Taxes and Inflation

Estimate the potential impact taxes and inflation can have on the purchasing power of an investment.

View all calculators

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

5 Smart Investing Strategies

There are some smart strategies that may help you pursue your investment objectives

View all presentations

Estate Management 101

A will may be only one of the documents you need—and one factor to consider—when it comes to managing your estate.

Retirement Redefined

Around the country, attitudes about retirement are shifting.

Once Upon a Goal

Do you know how to set up your financial goals for success? This knight does.

View all videos