Retirement is unlike other life transitions in that you need to plan years, or preferably, decades in advance and you’ll need advice for retirement. Before we get into specific retirement advice and investment strategy, it is important to remember two broadly defined themes. First, we are now living longer, which offers us both challenges and opportunities. The challenges are fairly obvious: how will you pay for retirement? Will you have enough money to sustain you through a lengthy retirement? The opportunities that await you during retirement are seemingly endless, but you need to have a sense of purpose and meaning. People who have a sense of purpose had a 15% lower risk of death, compared to those who said they were aimless.1 Another way to think about retirement is that you need to define it for yourself. Once you define something, you bring clarity to it.
Targeted Retirement Advice
Once you define the kind of retirement you want for yourself, you will need to create a list of targeted questions. These questions, and the answers, will in effect become your roadmap that will help you achieve your vision. These questions include:
- When should you retire?
- How much will I need for my retirement years?
- How much can I safely withdraw each year without depleting my investment portfolio?
- How do I provide a legacy for my loved ones?
- Will I be able to rely on Social Security benefits?
- Will my pension be able to take care of me?
- Should I plan for retirement on my own or get targeted retirement advice from a qualified and experienced financial planner?
Although you can answer many of these questions on your own, I always recommend that you consult with a qualified and experienced financial planner for retirement advice.
Investment Risk Management Strategies
Risk is one of those unavoidable things in investing. There are two broadly defined investor types. There are some investors who focus almost exclusively on returns and how fast they can grow their money. This type of investor is always finding ways to protect herself against the inevitability of a market correction or a bear market by using risk management strategies. For those who focus on risk, there are risk investment strategies that may be very helpful.
- One strategy to help you manage risk is to reevaluate your portfolio diversification and asset allocation. To further diversify, investors may want to think beyond stocks and bonds.2
- Another risk management strategy is known as rebalancing. The process of rebalancing is to keep a portfolio well-diversified. You see, over time, different assets have different returns or losses. This might mean that you let go of those investments that have appreciated in value while buying investments that are declining in value.
- Another risk investment strategy is to invest consistently. In other words, don’t over react if your investment is declining. If you are in this for the long-term, US Stock Markets can rise and decline over time so it’s important to understand your investment time horizon.
- You can also get an investment risk analysis. This is also known as your risk profile. Investors are generally classified as aggressive, moderate, or conservative investors. You need to know which type of investor you are.
Retirement Plan Analysis
A retirement plan analysis is quite simply an examination of your current financial plan. It is designed to determine if you are on a path to realize your goals for retirement. Part of the retirement plan analysis is to check if you have a 401(k) plan and if your contributions are on track. Other areas of a retirement plan analysis include when you can comfortably retire, your Social Security benefits, investment strategy, as well as budgeting and saving.
You also need to review the factors that will help you achieve the lifestyle you envision for your retirement. Some of these factors include:
- Current income
- Life expectancy
- Current and future expenses
- Emergency fund
- Will or trust
- Home and life insurance
Perhaps the most important thing you can do now is to have a qualified and experienced financial planner analyze your current financial plan. The retirement advise should include a review of your investment portfolio. Your advisor should check to see if your portfolio is properly balanced with respect to your risk tolerance and time horizon.3
We live today in age of information saturation. We are bombarded by a near infinite supply of information and yet we cannot possibly absorb a fraction of it. In my book, Redefining Financial Literacy, I wrote about the Google-ized mind, which is our tendency to skim for information without absorbing much knowledge. One of the consequences of having too much information at our fingertips is the Dunning-Kruger effect, which is a person’s, “inability to recognize their own lack of ability…without this awareness, people cannot objectively evaluate their own competence or incompetence.”4 This is why I always stress that people seek out the services of a qualified and experienced financial planner. Having a highly trained advisor by your side will help you avoid the cognitive bias that most of us are prone to have as a result of having a superficial awareness of complex financial concepts.
Financial Risk Management Strategies
An investment risk management strategy is a process of assessing, managing, and mitigating losses. This process is used by large corporations as well as financial planners to potentially minimize risk. One very important feature of financial risk management is to reduce the degree of uncertainty in investment decisions. Fund managers for large institutional investors or university endowments quantify the potential for losses as a result of investment strategies. Financial risk management strategies are connected to the concept of return on investment. For example, the degree of risk for a U.S. T-bill is close to zero while the risk for emerging-market equities is very high. The goal, of course, for fund managers and financial planners is to minimize risk as much as possible. Some investment vehicles carry higher risks than others. For example, stocks carry a high level of market risk in the short term, while bonds offer low levels of risk. Diversification may potentially lower your investment risk. Diversification across, “asset classes may also lessen the impact of major market swings on your portfolio.”5
One of the reasons I wrote my Amazon and Wall Street Journal best selling book, Redefining Financial Literacy, was to shed light on the financial literacy problem in America. I also defined financial literacy in terms of the hidden political and economic forces that impact your investment decisions. In addition to offering advice for retirement, I also revealed my mullti-asset class investment portfolio that can potentially offer you robust returns while managing risk.
1 Kathleen Coxwell, “65 Tips for a Healthy, Wealthy, and Happy Retirement!” newrtirement.com,
2 SoFi Learn, “6 Investment Risk Management Strategies,” sofi.com, September 10, 2020. https://www.sofi.com/learn/content/investment-risk-management/
3 Joyce Streithorst, “What to Review when Conducting a Retirement Planning Financial Analysis,” frischfinancial.com, April 15, 2020. https://frischfinancial.com/what-to-review-when-conducting-a-retirement-planning-financial-analysis/
4 Dale Gillham, “Is the Dunning-Kruger Effect Killing Your Profts?” wealthwithin.com.au, February 11, 2020. https://www.wealthwithin.com.au/learning-centre/stock-market-show/is-the-dunning-kruger-effect-killing-your-profits
5 Ameriprise Financial, “3 Strategies to Help Reduce Investment Risk,” Ameriprise.com, June 30, 2021. https://www.eulerhermes.com/en_US/insights/how-to-assess-financial-risk.html