Are You Taking Too Much Risk with Your Retirement Investments?

Understanding Risk in Your Retirement Portfolio Could Save You Hundreds of Thousands of Dollars

Do you want a risky plan that might make you rich in retirement, or do you want a plan that absolutely guarantees you won’t be poor?

This is a question we’ve asked thousands of families, and the overwhelming majority choose the latter. After financial crises like those in 2008 and during the COVID-19 pandemic, many people approaching retirement are changing their priorities.

They’ve swung for the fences with their investments before retirement. But as retirement approaches, their focus shifts dramatically.

Many retirees tell us their main concern isn’t maximizing returns anymore. It’s ensuring their money lasts throughout retirement.

Why Retirement Risk Management Matters

When you’re in retirement, your tolerance for investment losses changes dramatically. You no longer have the luxury of waiting for the market to recover.

Most people don’t realize how much risk they’re actually taking with their retirement savings.

The truth is, retirement is supposed to be enjoyable and stress-free. The last thing you need is to lose sleep over market volatility.

The High Cost of Too Much Risk

Let’s look at a real-world example from some clients we met recently. This couple was just over 70 years old in their second marriage. The wife was about 10 years younger than her husband.

They had been working with a financial advisor who kept telling them they were getting “great returns” and generating “great income.” But they had no idea what was really happening with their money.

The husband had some medical issues, and his wife was trying to manage their finances. She needed to understand how their investments worked.

When we measured their portfolio risk, she was shocked. On a scale where zero is the least risky and 100 is the most risky, their portfolio scored 79.

That’s far too much risk for someone in their 70s. And to make matters worse, they were paying over 2.5% in fees.

Measuring Your Retirement Risk

One of the most important steps you can take is to measure your current retirement risk. Many people we meet have no idea how much risk they’re actually taking.

As a fiduciary, we always ask our clients: “How much of your hard-earned money are you okay losing?”

Most people respond with something like, “I don’t want to lose more than 10%.”

Yet when we actually measure their portfolios, we often find they could lose 30% or more in a significant market downturn.

Consider Bob and Carol, a couple who had saved $1,074,000 for retirement. When we analyzed their portfolio, we discovered that while they were only comfortable losing 10% of the value of their investments, their actual portfolio was positioned to lose over 32% in a major market downturn.

That’s $344,000 of their retirement savings at risk!

What a Market Crash Could Cost You

Many retirees don’t fully appreciate what a market crash would mean for their retirement security.

Think about it: If you’ve saved $1 million and the market drops 32%, you’ve just lost $320,000. That’s a life-changing amount of money at any age, but especially in retirement when you have limited ability to rebuild your savings.

Making matters worse is something called “sequence of returns risk.” This means that if you’re withdrawing money from your portfolio during a market downturn, you’re locking in those losses permanently. You’re selling investments at their lowest point.

When you combine market losses with regular withdrawals, the damage to your retirement security can be devastating and permanent.

Think that Stock Market Crashes Aren’t Very Likely? Think Again

Over the last 65 years, (since 1960,) there have been 13 significant stock market crashes or corrections where the market dropped by 10% or more.

Let me ask you a question – if this many significant downturns have happened within the average retiree’s lifetime so far, what makes you think they aren’t likely to happen during the rest of your life?

Here’s a list of those major downturns:

1962: ~28% decline (December 1961 to June 1962)
1966: ~22% decline (February to October 1966)
1968-1970: ~36% decline (November 1968 to May 1970)
1973-1974: ~48% decline (January 1973 to October 1974)
1980: ~17% decline (November 1980 to August 1982)
1987: ~36% decline including “Black Monday” crash of 22% in one day (August to October 1987)
1990: ~20% decline (July to October 1990)
2000-2002: ~49% decline (March 2000 to October 2002)
2008-2009: ~56% decline during the Great Recession (October 2007 to March 2009)
2011: ~19% decline (April to October 2011)
2018: ~20% decline (September to December 2018)
2020: ~35% decline during COVID-19 (February to March 2020)
2022: ~25% decline (January to October 2022)

These figures generally reference the S&P 500 index and represent peak-to-trough declines. There have also been numerous smaller corrections (10-15% drops) throughout this period as well.

The frequency of these significant downturns highlights why risk management is so crucial for retirement planning.

How to Sleep Well During Market Downturns

At B.O.S.S. Retirement Solutions, we believe your investments should be boring so your retirement can be interesting.

The solution is relatively simple: align your investments with your risk tolerance. This means adjusting your portfolio so it won’t lose more than you’re comfortable with during market downturns.

For Bob and Carol, we restructured their investments to match their risk profile. Instead of being positioned to lose $344,000 in a market crash, they were now protected against such devastating losses.

This means they can sleep peacefully at night, knowing their retirement is secure even if the market takes a significant dive. Effectively, that’s like keeping an extra $244,000 in their pocket compared to their previous strategy.

The Illusion of Control

Many people feel out of control with their retirement accounts. They make regular contributions, choose from a limited menu of investment options, and hope everything works out for the best.

But this isn’t a plan – it’s just hope.

True retirement security comes from having control, access, and options with your money. It means knowing exactly how much risk you’re taking and being comfortable with that level of risk.

It means having a comprehensive strategy that considers all aspects of your retirement, not just your investment returns.

Building a Solid Retirement Foundation

Your retirement savings should be the foundation of your financial security in your later years. The foundation of a house is the most important part – if it’s not solid, the whole structure is at risk.

Similarly, your retirement plan needs to be built on a solid foundation of risk management and income planning. It’s not just about how much you’ve saved, but what you do with that money that really matters.

If you’ve saved $1 million for retirement, a comprehensive retirement plan could make that $1 million act like $2 million. But without a proper plan, $2 million might only work like $1 million – that’s the impact a comprehensive financial game plan can have on your retirement savings.

The Importance of Customized Retirement Planning

Everyone’s retirement situation is unique. Cookie-cutter approaches to retirement planning often fail because they don’t account for your specific circumstances, goals, and risk tolerance.

That’s why at B.O.S.S. Retirement Solutions, we develop customized retirement blueprints for each of our clients. B.O.S.S. stands for “Build the Optimal System of Security.” Together, we can build that for you.

We’ve helped thousands of families prepare for a secure retirement. Our experience gives you an unfair advantage – you don’t have to make the mistakes others have made before you.

Understanding Your Unique Risk Profile

Your risk profile is determined by several factors:

Your age and retirement timeline
Your other sources of income (Social Security, pensions, etc.)
Your retirement spending needs
Your personal comfort with market volatility
Your financial goals in retirement

Once we understand these factors, we can design a retirement strategy that aligns with your personal risk tolerance while still providing the growth needed to maintain your lifestyle throughout retirement.

Protecting What You’ve Worked So Hard to Build

You’ve spent decades building your nest egg. Don’t put it at unnecessary risk just as you’re about to need it most.

Many of our clients tell us that what they value most about their retirement plan is the redundancy of income and the lack of risk they feel. After years of working hard to save for retirement, they want to enjoy their golden years without constantly worrying about market volatility.

Don’t Leave Your Retirement to Chance

The biggest mistake many people make is thinking they can “wing it” when it comes to retirement planning. They accumulate assets throughout their working years but have no strategy for turning those assets into reliable retirement income.

A comprehensive retirement strategy should address:

How much risk you’re taking with your investments
How to generate reliable income in retirement
How to minimize taxes throughout retirement
How to protect against rising healthcare costs
How to maximize Social Security benefits
How to leave a legacy for your loved ones

Take Action Now to Secure Your Retirement

If you’re concerned about the level of risk in your retirement portfolio, the time to act is now. Don’t wait for the next market crash to discover you were taking more risk than you realized.

Let’s make sure your retirement savings are properly aligned with your risk tolerance. Our free customized B.O.S.S. Retirement Blueprint™ process could help save tens of thousands, if not hundreds of thousands of dollars in taxes in retirement. Plus, you can discover strategies for ringing every nickel out of your Social Security benefits and so much more.

It’s easy to get started with your free B.O.S.S. Retirement Blueprint™. Just call 800-637-1031 to schedule your free analysis or click here to request your free B.O.S.S. Retirement Blueprint™. A call or click is all it takes to get started with your free B.O.S.S. Retirement Blueprint™. Remember, retiring successfully doesn’t happen by accident—it starts with having a plan. And that plan is the B.O.S.S. Retirement Blueprint™.

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