How Much Can You Afford to Lose in Retirement?

Watch the interview with Kevin Bard, Investment Advisor, Charter Federal Employee Benefit Consultant and author of “The Retirement Umbrella.” http://rightonthemoneyshow.com/how-much-can-you-afford-to-lose-in-retirement-kevin-bard/

Generally speaking, people have two serious misperceptions about the market: one, the rates of return they actually receive on their investments, and two, the risk they’re willing to accept to get those returns.

Many seniors near or in retirement are quick to express their willingness to take on more risk or they feel comfortable with their understanding of risk to achieve higher gains. But when you help them review their portfolios, they're not necessarily generating the kind of gains they thought they were getting, and they're not really willing to accept the kind of risk they thought they were willing to take.

Ask yourself this question: What is the maximum percentage you are comfortable with losing? You know the market goes up and down. And when it does go down, many people have the idea it will come right back up, so they think it’s no big deal. But when you’re getting closer to retirement, it becomes a bigger deal. You have to ask yourself, how much am I willing to lose to try to get a bigger gain? This is a defining moment in the financial psyche; it defines the comfort zone.

There seems to be a gender gap when you’re talking about the comfort zone. One observation is male risk-tolerance tests are more conservative than their 401(k) holdings. On the other hand, female 401(k) holdings appear to reflect their risk-tolerance test results. Sometimes the comfort zone is defined by time. After all, if you’re age 35, you may have 35 to 40 years until retirement, plenty of time to ride out the ups and downs of the market. But if your psychological disposition towards risk is conservative, all the time in the world won’t eliminate the insomnia turbulent markets can cause. As Shakespeare once wrote, “ Above all else, to thine own self be true.”

(This press release contains segments from chapter one of “The Retirement Umbrella.”)