How Much Risk? Retiree Carl

Real Risk for Real People – Home

Introducing Carl from the Condo Clubhouse

Carl is a 68-year old retiree living off his social security and the IRA portfolio he had built up during his work years. He’s healthy and it looks like he should breeze past 80 and given how things are nowadays, maybe even past 90. In human terms, that’s great and we hope he tops 100. Financially speaking, however, that poses a big challenge. His portfolio may have to support him for a very long time, so he should try to avoid or minimize withdrawals from principal and be careful when it comes to putting the value of his principal at risk.

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If only this was 1980, when his then-retired grandfather earned nearly 20% from money market funds. Carl, however, will have to take more risk for a lot less return. However difficult this may be, Carl should seriously consider setting his risk score at 1 (Most Conservative). It’s the best protection he can get for his principal without going to an extreme that drops the yield on his investments to near zero. Also of note, the Risk-1 asset allocation refrains from locking funds up for a long time, so if/when rates move up, Carl will be able to enjoy more income with less threat to principal.

Carl used to build his portfolio through tax-deferred vehicles. But now, being in a lower tax bracket (as is often the case for retirees) and at an age where withdrawals are commonplace, there’s no pressing reason for him to continue to go that route (unless a meeting with his financial planner shows him something unique about his circumstances that so warrants).

  • Sarah, from another retirement condo down the road, looks at Mike’s portfolio and sneers. She chose Risk-5 (Most Aggressive). Is she flirting with danger? Click here to find out.

See Risk Assessment Notes (Cheat Sheet)

The Nature of the Risk-Return Tradeoff

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