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
or 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.