How Much Investment Risk Should You Take on During Retirement?
Written by
Laura Bogart
Edited by
Kristen Mae
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There are a lot of questions to ask yourself in retirement. Should your first trip be to Bermuda or Boca Raton? Which new hobbies do you want to take up? But the answers to those questions are heavily dependent on your sources of income — including your investments. Making smart investments that can support your lifestyle in retirement means evaluating the right level of risk to take on.
Knowing how to balance your urge to protect what you’ve saved with your desire to grow your investments can feel like walking a tightrope. With careful, savvy moves, you can get to the other side with a stable income; take the wrong step and, well — you don’t want to fall. While deciding how much risk is manageable is a very personal decision, best made in consultation with a financial advisor, there are some broader factors to consider.
Ultimately, there’s no one right answer about the appropriate amount of risk — only what is right for you — but you should be mindful of a few key principles.
Sometimes, Playing It Safe Is Dangerous
Doug Throneburg, executive vice president and head of wealth management at Byline Bank, understands that when many retirees consider retirement investing, their instinct is to play it safe; they may shift from equities to bonds and cash. He’s quick to suggest that, in reality, playing things too safe can be just as dangerous as taking on too much risk — especially when you consider the possibility of outliving your savings if you’re overly conservative.
“Investors often ignore the ‘cost of caution.’ With retirees often facing 25 to 30 years of living expenses, inflation and longevity risk can quietly erode even the most carefully saved nest egg,” he said. “The question isn’t whether to take risk but rather how to manage it intelligently.”
Throneburg says equities remain critical for long-term wealth preservation since they have historically outpaced inflation. However, he notes that retirees should calibrate their allocation to reflect their income needs, time horizon and comfort levels.
“A diversified portfolio helps mitigate volatility while keeping your money productive over decades,” he said.
You Can Adjust Your Risk To Match Your Longevity and Goals
Some people fear taking investment risks in retirement because they assume they’ll be locked into their choices forever. But Throneburg reminds retirees that risk management isn’t static.
“It should evolve with your health, life expectancy and spending goals,” he said. “A healthy 65-year-old may need moderate equity exposure for 20-plus years, while someone with shorter horizons might prioritize capital preservation.”
Your best bet is to conduct regular reviews of your portfolio and work with an advisor to ensure your strategy continues to match your needs as they change.
You Can Take a Middle Path
For James DesRocher, a financial advisor at TrueView Financial, there’s a clear middle path that lets you build a safety net while taking on some growth-oriented risk.
“The smarter move is growth allocation with a safety net — keeping enough liquidity and guaranteed income to weather market downturns, while allowing the rest of your assets to remain properly invested for the long run,” he said.
He advises creating a bucket system to help retirees balance stability and growth:
- Short-term bucket: One to three years of income in cash or guaranteed accounts for stability.
- Intermediate bucket: Three to seven years in moderate-risk investments for replenishment.
- Long-term bucket: Ten to 20-plus years invested for growth and compounding.
With this approach, your growth bucket can continue compounding, while your near-term income remains protected from market swings.
Adding Annuities Can Help You Manage Risk
DesRocher encourages you to talk with your financial advisor about whether an annuity could be an appropriate tool. When structured properly, annuities can provide guaranteed income that isn’t tied to market performance — a feature many retirees appreciate during volatile periods.
“Think of it this way: If part of your income is locked in and guaranteed, you can afford to let your other assets ride out the market’s ups and downs without panic selling,” he said. “This approach allows retirees to continue benefiting from market growth — especially during the later decades of retirement, when inflation and longevity become the biggest risks.”
While annuities aren’t for everyone — which is why talking to a professional is so important — they can offer a psychological and financial foundation that helps retirees stay appropriately invested elsewhere.
The Bottom Line
A smart retirement plan will empower you to enjoy your time out of the workforce without worrying that you’re being too reckless or too cautious with your investments. While only you — ideally with the help of a financial advisor — can decide how much risk feels acceptable, the goal is to strike a balance: building safety and stability into your plan while still allowing for long-term growth.
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