Unfortunately, those in the retirement “Red Zone” and those already in their “golden years” often take on entirely too much risk in their retirement portfolios. Why? Some people want to hedge against future inflation while others fear they need higher growth potential to make it through retirement without running out of money. Often, these investors were simply following the advice of a traditional advisor still focused on “accumulation” when a more appropriate strategy would have been “preservation". When entering the retirement “Red Zone” (5-7 years before retirement), lowering one’s risk is often a prudent and pivotal step to making your money last for a lifetime. The 100-Age Rule can help investors understand how to make this transition.
A useful tool for calculating how much risk one might carry into retirement is the 100-Age Rule. Everyone goes through 3 financial phases: accumulation, preservation and distribution. Retirement could likely move one from the "accumulation" phase to an emphasis on "preservation”, allocating more toward income-producing assets, thus taking some risk off the table. Run this simple Age-100 Calculation: Subtract your current age from the number 100. The numerical answer should be the approximate percentage of assets that might still be appropriate to have "at risk." Your current age should then serve as the percentage of assets allocated to strategies with less risk – strategies ranging from CD’s to Bonds to Fixed or Indexed Annuities. But in these days of uncertainty, this is only a rule of thumb. During the past 10 years, many Red Zoners lost over half of their nest egg TWICE, and this reality has caused some advisors and clients to re-think this trusted equation. Many 70-year-olds don’t want 30% of their money at risk just because a formerly “old accepted rule” suggests it. Our 3-Step Review looks at how every financial decision affects taxes, income and risk! The Investment Risk Review is a natural part of this 3-step process. Call today for a free consultation and introduction to our powerful 3-Step Review.
Although the 100-Age Rule provides a good starting point, investors should not solely rely on it. Though it is called a “rule,” in reality, it's a TOOL! The Investment Risk Review module in our 3-Step Review can provide a more thoughtful answer after we fully understand the purpose of the money. To learn more about our Investment Risk Review, call or request a 3-Step Review.