Planning for retirement isn’t just about saving — it’s about protecting what you’ve saved and making sure your money lasts. One of the biggest threats to a secure retirement? Investment risk.
At our firm, we help clients not only grow their wealth but understand and manage the risks that could disrupt their retirement plans. Let’s take a closer look at three key types of investment risk every retiree (and future retiree) should understand:
1. Market Risk – What Happens When the Market Takes a Turn
Market risk is the possibility of losing money due to changes in the market — like a drop in stock prices. This can be especially damaging right before or just after retirement, when your portfolio is at its largest and you begin taking withdrawals.
One study by retirement researcher Wade Pfau [1] looked at 151 different 30-year periods of investment returns and found that the same investment strategy led to wildly different retirement outcomes — from ending with 3x your salary to 27x — depending on when the investor started saving.
Here’s what that means: If you had $1 million in your retirement account at the end of 2007 and then lost 30% in 2008, you’d be starting retirement with just $700,000 — and possibly no time to recover.
But here’s the twist: Avoiding all market risk isn’t the answer either. Some exposure to stocks (equities) is important to help your portfolio keep up with inflation and grow over time.
How we manage market risk:
- Layering your plan with stable income sources (like annuities or Social Security) to cover your basic needs
- Reducing stock exposure near your retirement date
- Building flexibility into your withdrawal strategy to adjust in down markets
- Exploring downside protection tools like portfolio insurance or income riders
2. Interest Rate Risk – When Bonds Don’t Behave as Expected
If you own bonds (or bond funds), your investments are sensitive to changes in interest rates. When rates rise, bond values fall — and that can affect the income you’re counting on in retirement.
In today’s world of low interest rates, retirees face a double risk:
- Bond values may drop if rates rise
- New bonds may pay even less when reinvested
This is called interest rate risk and reinvestment risk, and both can eat away at your retirement income.
How we manage interest rate risk:
Using a strategy called asset dedication, which matches bonds to specific income needs over time
- Holding some bonds to maturity (so you receive the full value)
- Diversifying with other income-producing investments
- Exploring total return strategies that aim for long-term growth beyond just bond interest
3. Liquidity Risk – When You Can’t Get to Your Money
Liquidity means having access to your money when you need it — without taking a big loss or waiting months to cash out.
In retirement, unexpected expenses may occur. Whether it’s a home repair, a family emergency, or a health issue, you need the ability to tap into your savings quickly and efficiently.
Certain investments (like real estate, businesses, or annuities) may not be easily converted to cash. That’s where liquidity risk comes in — and why it needs to be part of any smart retirement plan.
How we manage liquidity risk:
- Building emergency cash reserves
- Keeping part of your portfolio in liquid, flexible investments
- Using tools like a home equity line of credit or life insurance loan provisions
- Planning ahead for the right balance of flexibility and structure
Retirement Planning Is More Than Numbers — It’s Strategy
Investment risks don’t go away in retirement — they just change. As your advisor, it’s our job to help you navigate these risks with a clear, thoughtful plan so you can retire with confidence.
Whether you’re nearing retirement or already there, we’ll work with you to:
- Understand your risk exposure
- Build a plan that adjusts to market and interest rate shifts
- Keep enough flexibility to weather life’s surprises
Let’s talk about how your portfolio is positioned for the future. Because the best retirement plan isn’t just built — it’s protected.
[1] https://retirementresearcher.com/you-cant-control-when-youre-born-revisiting-sequence-of-returns-risk/