Navigating Risk in Retirement

Welcome to the Healthy and Wealthy Retirement, where your certified retirement counselor, Mark Struthers, takes a holistic approach to retirement.

Going beyond finances and embracing holistic well-being, this YouTube channel will address not just the financial part of retirement, but also the social, the physical, and the emotional parts of retirement. Everything you need for a healthier, a wealthier, and a happier retirement. Here is your host, Mark Struthers. Hi, welcome to the Healthy and Wealthy Retirement. My name is Mark Struthers.

I'm your host. Thank you for joining us. We're going to talk risk today, risk in retirement. And risk is all around us. You know, we can't escape it. As a kid, I remember the movie Risky Business. Tom Cruise made taking on risk fun and entertaining. But for the rest of us, we have to take risk seriously. It usually has anxiety to it. And sometimes that anxiety can spoil a perfectly good retirement. We're going to talk about the one thing, one surprising thing.

It shouldn't be, but the surprising thing that you can do about risk and retirement. I recently had a client come in very close to retirement, and he talked about being hit by the bus. And I don't think he meant that as a joke, but it was that he wasn't wrong. That's a risk. What happens if I get hit by a bus? And quite often when we hear that kind of stuff, we're talking life insurance, disability insurance, something like that.

And it is something that we need to take more seriously as we get older. And when we talk about retirement, there are all kinds of risks. Health risks are a big one. We're living longer, but we also are having a tougher time staying healthy. Part of that is probably lifestyle. But even things like slips and falls, serious diseases, LTC, long-term care, career risk. You know, it's tough to go back to work once you retire. You know, and that's where working part-time, a big fan of that.

I think most folks need to kind of plan on that early on so they can do something that they enjoy. Where, you know, often, especially once the kids are out of the house, I can speak for myself. You know, once the kids are out, especially out of college and really on their own, you know, the idea of working 20 to 30 hours a week is something I enjoy is, to me, that's not a bad retirement, at least for a while.

One of the more recent risks is inflation. Inflation we did not have for a while. I did finish the last level of CFA in 2003. That's a long time ago. Actually, a week before my wedding. Interesting story. And going through the CFA and we looked at historical inflation, 3% was not unusual. And little did I know that we would embark on a, if not two decades, a decade and a half of very little inflation.

And I often would have a tough time to engage clients, retirees, as far as the risks of inflation. Inflation for baby boomers, older baby boomers in those older generations, silent generation, I think, became before them. Inflation in retirement probably wasn't as big a deal just because the time horizons were so short. Inflation's compounding is what does you in.

Along that line, you have fixed income risk. Rising rates of inflation can hurt fixed income or lower yields if you're going to try to live on some sort of income. Ideally, it should be a total return approach, but some people like more traditional income.

Investment risk, simply retiring before a really Great Depression financial crisis. One big one that is getting more attention is longevity risk. People are living longer, outliving your money. What if your money runs out? And volatility. volatility, stocks, bonds, and inflation. Part of the worst thing about inflation these last few years was before I couldn't get people to worry enough about it. Now they're worried too much. It's the uncertainty.

And especially when you have uncertainty around stock returns and bond returns.

What is the one thing that you can do about any risk that most people don't. Understand the possible outcomes. Even rent scenarios. Now, when it comes to financial planning, we have software that does it. We do spreadsheets. But you even think about, what if I had a flat tire? I would love to get my sons to actually go through, and maybe I'll force them to go through changing a tire. So that if for some reasons it were to happen at a bad time or a bad place,

that they wouldn't have to Google it. And that's the response I get for a lot of things now is, you know, I'll Google it, Dad. Well, they're not entirely wrong. You know, Gen Xers like me didn't have that luxury. But ideally, if you could run those scenarios and then you get an idea of what it's like. We had a flat tire two or three years ago, actually, on the way to one of my, I think, my niece's birthday parties. But it just so happens that there weren't any cars around when they weren't

close by. some 35W, close by when the tire blew and was able to keep it on the road. And just by chance, they had several lanes blocked off for construction, but nothing there. And there was even a port-a-potty a little ways away. So that doesn't always happen. So you need to kind of be prepared that if something happens and you can't Google it or you don't have a sunny day all by yourself to change the tire.

So you should try to do things, once you understand the risk, you should try to do things to limit the risk, negate the risk, but still reach your goals. You don't stay away from the grocery store because there might be a car accident, but maybe you don't go when the roads are icy. You might wear your sleep belt, drive more slowly, but you still go get your groceries. You have to live a healthy life.

The same goes for your investments. A lot of people, as they approach retirement, don't want any equity exposure, risky asset exposure, equities, real estate, whatever the case may be. But if you understand why you're taking on that risk, you can not only ignore the volatility, but out of understanding, you can even take advantage of it.

So ignoring out of fear does a little good, but if you ignore it because you understand it, and then you could take it a step further and even take advantage of it. When my boys were little, if they heard a scratching outside, they would be afraid. Someone was trying to get into the house. But if we took a look and shined a light on it and saw it was a branch, they knew it wasn't a vampire. They knew it was just the wind and nature. So in most cases, knowledge is power.

Anytime we take on risk, there should be a reason for it. In the case of equities or risky assets in retirement, we take it on because we need inflation-adjusted returns. Without the risk, that return would not be there. You can't see the return show without buying the risk ticket.

So ideally, if you can not only understand risk, understand why you're taking it on, but appreciate it, be thankful for it, I know that's a stretch, than it is. It's a lot easier to handle inflation risk, stock risk, bond risk. And if you can really get your arms around the risk you're taking on and why, you're going to have a healthier, a wealthier, and a happier retirement status. Music.