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.
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 want to consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities and specially designed permanent life insurance for just that reason.
The guarantees of annuity and life contracts 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 highest if you take out the money in the early years of an 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).
Permanent life insurance requires staged funding to assure tax-free access to policy values. Policies carry higher internal charges in the early years. Access to loans and principal is usually tax-free and is not subject to any age restriction.
The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.
- 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.
This information is from sources believed to be accurate and 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 VANCO Financial Group. The opinions expressed and material provided should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.