Pure’s Principal, Marc Horner, CFP®, reveals the hidden risks of being overly safe in retirement and explains why being too conservative can be one of the biggest financial mistakes you can make.
Transcript
Many people come into retirement with one financial goal stamped into their brain: do not lose money. Now, being sensitive to the risk of losing money, that is not wrong. However, risk takes many forms, and what looks and feels safe might be masking a completely different kind of risk. So today, we’re flipping the script on what safe actually means in retirement and why being too conservative, that might be one of the biggest financial mistakes you can make.
So first is the risk hiding in plain sight. When most people think about investment risk, they picture market crashes, their portfolio dropping 30% in just a few weeks. And that’s real risk without a doubt, but there’s another risk that’s just as real, and it can become bigger the more we try to play it safe, and that’s inflation risk.
Something that costs $50,000 today will cost roughly 90 grand in 20 years. But if your retirement savings is loaded with low yield, safe investments, things like savings accounts, CDs, short-term bonds, you may not be keeping pace. And if your money isn’t keeping up with inflation, you’re falling behind every single year.
And that means the $50,000 you’re spending today, that might not be sustainable 10 or 20 years from now There’s a second piece of this that makes conservative investing riskier than it might look, and that’s longevity. A 65-year-old today has a very real chance of living into their late 80s or even into their 90s, so that’s potentially 25 to 30 years of retirement.
And a portfolio that’s 100% in conservative investments, that might feel safe right now, but if it’s not growing, it might not last to year 25. Running out of money during retirement is one of the most common fears. And ironically, the strategy most people use to manage that risk, invest conservatively, that might actually be making it worse.
This is not an argument for backing up the truck to Bitcoin and just crossing our fingers. The idea is that safe is not the same as low return. Real safety in retirement does not come from avoiding all risk. It comes from understanding risk shows up in different ways, and successfully managing risk requires different strategies.
So for example, a well-structured retirement plan typically balances a few things. First, enough stability to cover near-term income needs without being forced to sell investments at the wrong time, and that means when the markets are down. Second, enough growth assets to keep pace with inflation and extend the life of your portfolio over that 20 or even 30-year time horizon.
Third, a withdrawal strategy that takes into account taxes, account types, and sequencing. Because how you draw down matters just as much as what you own. So there’s not an absolute right answer. The right plan looks different for everyone. It depends on your expenses, your income sources like Social Security and pensions, your health, your goals, and your actual risk tolerance, not what some social media finfluencer says, and I don’t even think that’s a real word.
If you want a second set of eyes on your strategy to make sure you’re managing the risks that actually matter to you, that’s what we’re here for. We’re offering free retirement assessments right now. No strings, no pressure, just an honest conversation about where your plan stands and where it might be made stronger.
If this gave you something to think about, help us spread the word and share it with someone who might need to hear it too. Who knows? Ten to twenty years from now, they might even be thanking you.
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IMPORTANT DISCLOSURES:
- Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
- Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
- All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
- Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
