Should Retirees Consider Shifting To Lower-Risk Investments?

With the current state of inflation, market volatility, and economic uncertainty, one may ask – is now the time to shift to lower-risk investments?

While riskier investments aimed at high growth have been ideal for accumulating savings, retirees may often benefit from a different approach—one that emphasizes security and stability. Moving a portion of your investments into safer, lower-risk options may be essential for protecting your nest egg and ensuring a comfortable retirement.

Safeguarding Your Retirement Savings

When you retire, preserving your capital becomes more critical than ever. Unlike during your working years, you won’t have the luxury of regular income to replenish any losses from market downturns. This makes it vital to protect the assets you’ve accumulated. Retirees who keep a large portion of their portfolio in high-risk investments face the potential danger of significant losses, which may be difficult—if not impossible—to recover from.

A study by the Employee Benefit Research Institute (EBRI) found that many retirees experience financial shocks, such as market downturns, that force them to drastically alter their spending habits. By reallocating a portion of your assets into lower-risk options, you may reduce the likelihood of such disruptions, better maintaining a steady financial course through your retirement.

Reducing The Impact Of Market Volatility

Market volatility can pose a substantial threat to retirees, especially when withdrawals are involved. Withdrawals could be required in the case of tax-deferred accounts that are subject to required minimum distributions. The order in which your investment returns occur could negatively impact your portfolio—which may be particularly concerning for retirees. If you experience significant market losses early in retirement, it could deplete your savings faster than expected, even if the overall market performs well in the long run.

To combat this, retirees may consider shifting some investments into more stable, low-risk assets such as bonds, insurance, or annuities. These investments typically offer less volatility and can act as a buffer during market downturns, providing a more predictable income stream that isn’t impacted by market fluctuations.

Ensuring Steady Income In Retirement

Once you retire, your focus shifts from growing your investments to ensuring a consistent income. Low-risk investments play a crucial role in this phase, offering reliable returns that help supplement other sources of income, such as Social Security or pensions.

For instance, fixed-income investments like government bonds or annuities can provide a steady flow of income. Annuities may be particularly appealing because they offer guaranteed payments for the rest of your life, this means that you won’t outlive your savings. While these options may not offer the high returns associated with riskier assets, their stability and predictability make them worth researching for retirees looking to de-risk their retirement.

Diversification As A Strategy

Diversification in investments and tax buckets are fundamental strategies for managing risk, particularly when you are living off your retirement funds. By spreading your investments across different asset and tax classes, you can reduce the impact of poor performance in any single area. You also give yourself the flexibility to control your taxable income to potentially keep yourself in a lower tax bracket. 

A well-diversified portfolio might include a mix of stocks, bonds, and cash equivalents, as well as other low-risk investments like certificates of deposit (CDs), annuities, and insurance. The goal is to create a portfolio that offers both security and the potential for reasonable returns, helping you meet your income needs while protecting your savings from significant losses.

The Value Of Professional Guidance

Navigating the shift from growth-oriented investments to a retirement-focused income plan can be complex. A financial advisor with experience in tax-focused retirement planning may help you better evaluate your risk tolerance, income needs, and overall financial goals. They often assist in creating tailored retirement income strategies that emphasize capital preservation and steady income, while still offering some growth potential.

Conclusion

As you start to pay yourself and live off your retirement income, protecting your savings becomes a top priority. Transitioning a portion of your investments into safer, lower-risk options may be a prudent strategy to better safeguard your future income needs. With the guidance of a knowledgeable tax-focused financial advisor, such as co-founders of Oxford Advisory Group, brothers Samuel and Chris Dixon, you may confidently navigate these decisions, better ensuring that your savings support your lifestyle throughout your retirement. Oxford was recently named Inc 5000 Fastest Growing Companies.

Oxford Wealth Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information about Oxford can be found by visiting the SEC site www.adviserinfo.sec.gov. and searching by our firm name. We are a financial services firm that utilizes insurance and investment products. Insurance products and services are offered and sold through Oxford Advisory Group. Oxford Wealth Group, LLC and Oxford Advisory Group are affiliated but separate entities.

Clever Real Estate. “Retirement Statistics in 2024: U.S. Retirees in Crisis.” List with Clever, 2024. Available at: listwithclever.com.

Inc5000 Fastest Growing Private Companies selection was based on 3 years revenue growth and no compensation was required to be considered.

Schroders. “Global Investor Study 2024: Retirement Planning and Investor Sentiment.” Schroders, 2024. Available at: schroders.com.

For this content there has ben no compensation received, this is a personal opinion through original content that is owned by the author with no financial ties to subjects discussed.