Don’t Gamble Your Retirement

We were recently at a conference in Las Vegas, and it made us think about the retirement gamble. Gambling isn’t for everyone. Someone will hit a jackpot, but others simply aren’t good at it.

Murs went into the casino, and within ten minutes, he had lost the $100 he had set aside.

For a moment, he was up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.

When Does Risk Change in the Retirement Gamble?

Risk doesn’t matter as much when it’s money that you have set aside. If you put $10,000 into crypto using money that wasn’t going to be for retirement and whether you lose it or it triples, the outcome will likely feel different because you used money that was set aside. However, risk should be tamed the closer you get to retirement because you don’t want to have to be in the workforce for an additional year or two or more due to too high of risk.

Your risk tolerance can change at any time, but we often see two main circumstances where it changes:

  1. Life experiences and milestones
  2. Age

We have some clients in their 80s that are rather aggressive investors, and they’re often business owners who have dealt with ups and downs regularly.

Other clients are much younger and more conservative in their investments because they’ve been burned on investments in the past. These clients don’t want to deal with losses like they did in 2008.

Of course, the stock market is risk and reward, but there’s a stark difference between the risks of certain stocks. One stock may be in a dying industry, while another is a major grocery chain with less risk.

There’s no absolute wrong or right answer to the risk that you’re willing to take. We help our clients manage risk based on their tolerance so that they can be confident in their retirement strategy.

Uncertainty in Your Investments and Retirement

When people sit down and really start retirement planning, it’s common to have some uncertainties. You’ve never lived through retirement, and you don’t have experience knowing how to transition to using your retirement funds to:

  • Pay the bills
  • Derive income
  • Address taxes

You can have predictability and certainty in your retirement plan. Rules, just like at the casino, can help you manage your money so that it lasts the rest of your life. Plans allow you the freedom to leverage advanced tax strategies and have a steady stream of income from retirement that allows you to live the life you want without running out of the money you worked hard to invest and save.

Instant Gratification vs a Good, Long-term Strategy

Picture back in 2020, during the pandemic, there were MEME stocks, such as Bed Bath and Beyond and FOMO (fear of missing out). You would see on the news that investors were riding on the coattails of certain stocks, and everyone would follow the crowd.

Ultimately, these people who followed the crowd lost a lot of money because many of these stocks were being over-inflated.

People had a lot of fun with these trends, but as a long-term strategy, these trends ended up failing. A long-term plan is your best choice for retirement. We believe in multiple “buckets” in retirement so that all your money isn’t tied to the market.

For our longtime listeners and readers, you know we often discuss a few main buckets:

  1. Growth
  2. Safety/income

Safety/income buckets may make a 4 – 6% return in the next few years, and they’re not tied to the S&P 500. You can be confident that this money will be there for the next 10 – 20 years.

Growth buckets are separate from the safety and income buckets.

We can act like we’re in the casino with a growth bucket, still investing wisely, but your safety/income bucket is secure, and you can ride the ups and downs of the market. Volatility is here to stay in the market and it’s important to have a long-term strategy in place that allows you to secure your retirement and still make a nice return on investments.

Diversification in Retirement

You don’t want to put all your eggs in one basket or bet everything you have on one investment. A savvy gambler will put money on multiple games, and that’s what you should consider doing in your retirement.

For example, if your growth bucket has a high level of diversification, you hedge against losses and still have your safety/income bucket to rely on.

If the market goes down, you don’t have to stress or the emotions of the S&P 500 being down 20% because you have the money in your safety bucket to maintain your lifestyle. Your safety bucket allows you the freedom to let the stock market go back up again because history shows us that it will go back up if enough time passes.

It’s easy to see stocks down and sell because you’re down hundreds of thousands of dollars. But you’re less likely to sell at a loss and make a rash decision like this when you have other money to rely on.

Psychological Aspects of Investing

Investments are a gamble. Sometimes, people get stuck, and they say well, “I lost $1,000, but I have a good feeling this stock is going to rise.” Behavioral finance shows that sometimes people make decisions they may later regret based on what’s happening at the moment.

A sound strategy allows you to take a step back and avoid making rash decisions because you lost money in the stock market.

It’s inevitable that you will lose money in the market – periodically – but these losses are very likely to turn around. Going into the market with a plan of action and staying the course (with tweaks along the way) is better than making rash, costly decisions.

We don’t want you to gamble with your retirement.

Work with someone who will help you with investing, tax planning, Social Security and all of the other aspects of retirement. It’s helpful to have a professional in your corner who can help you navigate the different aspects of retirement.

We don’t have all the answers, but we have people on our team who can help.

Click here to schedule a 15-minute call with us.