Can You Be Too Conservative in Retirement?

We talk a lot about people on this show about people who have too much risk in their retirement portfolio, but I wanna talk about the other side of that coin, because an article I saw on The Motley Fool talked about people who are way too conservative and risk running out of money.

Is that something that you guys see? I'm interested your thoughts on this, 'cause this was really interesting for me to read.

So-

Yeah

... 100%.

We see it all the time.

Y- you know, we've seen it.

A client is close to retirement and, you know, he- he's saved, but things came up and he's not really quite where he needs to be or wanted to be.

And, oh, fr- the first words out of his mouth, uh, as I recall this one individual, "I can't afford to lose any money," y- you know? So, um, I'm just listening, and I said, "Well, let, let us put this together and we'll look at it," and, you know, it shows him running out of money at like in his mid-70s-

Ooh

... with what he was proposing to do-

Okay

... to be so ultra-conservative.

And I'm like, "Look, I feel you, okay? The- your worry," I said, "but you're in a position where you do need to be, you know, obtaining, you know, higher growth, quite a bit more than what you'd like to for the next five years if you want to try and meet that timeline." And I said, "Look, there's things that we can do to minimize downside," I said, "but ultimately, f- with the returns that you probably expect, given what's happened over the last 10 years, and what you do need, y- you know, you don't need those kind of returns, but 3 to 4% just isn't gonna make it."

Right.

You know, 'cause ultimately something like treasuries, although it's a little bit higher now, you know, tough to imagine it staying this way for the next 25 years.

So you gotta, you know, plan to stress test, y- y- you know, the portfolio and make sure you have a high probability of meeting the growth plans that you need and also, you know, achieving the income you need.

Like, you know, we said earlier, it's potentially going to get more challenging if the cut that the government is saying they're gonna make in Social Security, you know, unless the laws change on how they fund it, they will have no choice, and it's only five years away.

So to me, it's, it's around the corner, and maybe they can do something to fix it in a few short years.

I, I don't know that I would, you know, make my plan that way, though, okay?

Yeah.

You want a plan to make sure you're covered for what you need for your fixed expenses as an absolute minimum.

So that's the approach we take, and we work that in, and we want to see you have margin for those other things in life that you just don't know about, 'cause it's not an exact science, because life isn't.

So you- when you come in and you see the whole thing put together, you know, you're gonna be able to take a breath, let those shoulders drop, and say-

Mm-hmm

We talk a lot about people on this show about people who have too much risk in their retirement portfolio, but I wanna talk about the other side of that coin, because an article I saw on The Motley Fool talked about people who are way too conservative and risk running out of money.

Is that something that you guys see? I'm interested your thoughts on this, 'cause this was really interesting for me to read.

So-

Yeah

... 100%.

We see it all the time.

Y- you know, we've seen it.

A client is close to retirement and, you know, he- he's saved, but things came up and he's not really quite where he needs to be or wanted to be.

And, oh, fr- the first words out of his mouth, uh, as I recall this one individual, "I can't afford to lose any money," y- you know? So, um, I'm just listening, and I said, "Well, let, let us put this together and we'll look at it," and, you know, it shows him running out of money at like in his mid-70s-

Ooh

... with what he was proposing to do-

Okay

... to be so ultra-conservative.

And I'm like, "Look, I feel you, okay? The- your worry," I said, "but you're in a position where you do need to be, you know, obtaining, you know, higher growth, quite a bit more than what you'd like to for the next five years if you want to try and meet that timeline." And I said, "Look, there's things that we can do to minimize downside," I said, "but ultimately, f- with the returns that you probably expect, given what's happened over the last 10 years, and what you do need, y- you know, you don't need those kind of returns, but 3 to 4% just isn't gonna make it."

Right.

You know, 'cause ultimately something like treasuries, although it's a little bit higher now, you know, tough to imagine it staying this way for the next 25 years.

So you gotta, you know, plan to stress test, y- y- you know, the portfolio and make sure you have a high probability of meeting the growth plans that you need and also, you know, achieving the income you need.

Like, you know, we said earlier, it's potentially going to get more challenging if the cut that the government is saying they're gonna make in Social Security, you know, unless the laws change on how they fund it, they will have no choice, and it's only five years away.

So to me, it's, it's around the corner, and maybe they can do something to fix it in a few short years.

I, I don't know that I would, you know, make my plan that way, though, okay?

Yeah.

You want a plan to make sure you're covered for what you need for your fixed expenses as an absolute minimum.

So that's the approach we take, and we work that in, and we want to see you have margin for those other things in life that you just don't know about, 'cause it's not an exact science, because life isn't.

So you- when you come in and you see the whole thing put together, you know, you're gonna be able to take a breath, let those shoulders drop, and say-

Mm-hmm