Should risk be part of your portfolio close to retirement?

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  A retirement-aged couple reviews their portfolio online, considering the role that risk plays in retirement.

You can see the light at the end of the tunnel now that retirement is close. Have you thought about reviewing how much risk you're taking in your portfolio? Probably not. But did you know that risk is an important part of your portfolio, no matter where you are in life – even when you're retired?

Consider this: Your changing needs over time
When you first started saving for retirement, you may have been willing to take on more investment risk – for example, owning more stocks – for the potential for higher returns. This was because you had plenty of time to rebound from market fluctuations. But as you near retirement, it may make sense to review your strategy and determine how much risk is still appropriate based on your retirement goals. Growth is still very important, even in retirement, to provide for your needs and to cover inflation. But how much risk should you take?

Consider this: Weighing trade-offs
Ask yourself - How much risk am I willing to take within my portfolio? And how much risk do I actually need to achieve my goals in retirement? A difference in your answers could mean you need to adjust your plan.

For example, suppose you want to retire at age 55. However, after discussing your goals with your financial advisor, you learn that to retire at 55, you'll need a higher return, which also would mean more potential risk. So now you have choices to make that may include working longer, saving more or potentially taking a bit more investment risk. Your decisions may be a combination of all these, but the key is to have a strategy that you can stick with through the inevitable ups and downs of the market.

Action to take: Discuss your goals and the amount of risk you’re willing to take to reach them with your financial advisor. You may need to make some difficult decisions. But, ultimately, these decisions may help you avoid the biggest risk you face: not reaching your financial goals.