[Will]

When should we start to reduce risk? How many years out from retirement?

And what milestones (and when) do you personally take on reducing risk as you approach retirement age?

As retirement approaches, many people wonder when they should begin reducing the risk in their investment portfolios.

The idea is to shift from higher-risk investments, like stocks, to more stable ones, like bonds or cash, to preserve the wealth they’ve accumulated.

However, opinions vary on the best time to start this shift.

Some experts recommend gradually reducing risk in your 40s, while others suggest waiting until your 50s or even closer to retirement age.

The timing can depend on various factors, such as your current financial situation, retirement goals, and market conditions.

What’s your opinion on this matter? When did you or do you think it’s ideal to start adjusting your portfolio risk?

Should it be a gradual process, or should it happen in a more concentrated shift as retirement nears?

We’d love to hear your experiences and advice on how to approach this important step in preparing for retirement.

[Rick]

Asset location matters. A ton.
If you have tons of money in pretax and Roth, you can make a big change anytime without tax implications.

But switch that to most of your money in brokerage and you likely won’t do changes as abruptly.

But be honest on how much fear drives these decisions.

We battle fear fairly well in accumulation but the transition to decumulation seems to breaks down those learned fear handling concepts.

Planning for a series of the five rarest events in market history happening all at the same time, and this is what we see a lot with going to heavy bonds or heavy cash or bucket strategies or whatever, this is just fear turning your brain to mush.

And we need to recognize that before we can return to our fear handling methods.

I personally started 12-18 months out and simply changed my contributions % to asset classes I wanted to add for decumulation.

Then when 401k move to ira was time to do, this happens very very often as a move to cash and then cash transferred, I simply shift to my desired decumulation asset mix.

Now to be honest my shift in asset mix from accumulation to decumulation was fairly small.

Mainly because I didn’t have a brain mush fear but also because my transition wasn’t 100% accumulation then bam the very next day 100% decumulation.

I have a period of slow international low cost travel in that transition. Most people won’t do exactly that but replace it with a myriad of other reasons it just isn’t common to do a bam massive change between day 1 and day 2.

[Frank]

Don’t think in years. Think in dollars and in terms of your FI number.

If you are at or near your FI number and your portfolio is at or near an all-time high, that is a good time to reduce the risk of at least the portion of the portfolio that you expect to use for retirement.

You can still be aggressive (or not) with the rest.
This could occur ten years before retirement or three years.

The years don’t matter that much. That portion of the portfolio will continue to grow, just not as fast.

For us, it was around five years.
Here is the reality, though. The reality is “greed and laziness” leads to these fixations on “years to retirement” as a decision-making process.

First, most people get greedy when things are going well. Some never make the transition or make up some nonsense about “just needing some three-year cash bucket or flower pot to survive an “average” downturn”.

(Never mind the risk is suffering a decade-long downturn.)
And yes, you will actually get away with that most of the time, because the stock market goes up about 70% of the time anyway.

But that fortunate result does not mean you made a good decision to keep riding that risk pony.

Second, the other reality is that most people are lazy don’t actually know their FI number because they have not analyzed their expenses on a granular level.

And that is actually why they are running around looking for some “years to retirement” rule of thumb.

They are too lazy to add up the actual numbers.

[Mark]

No average time. Everyone is different. Maybe u don’t reduce risk at all.

All depends on ur situation

[Grant]

I take a contrarian approach. I am still working (self employed) and will probably work till I am 55 (52 currently). I own no bonds in any of my taxable or non-taxable accounts.

I also do not intend to ever own any. So how will I handle a down market? I currently have 5yrs of cost of living expenses saved in a taxable Fidelity SPAXX account earning 4%+.

So, I can sit through the worst that the stock market has to offer. Next, I sell covered calls and puts.

In a down market, you will make even more money doing this than an up market (as volatility drives higher premiums).

I am currently “practicing” selling options and make $2k-3K a week.

So, to answer the OP’s question, I don’t intend to ever reduce risk. Growth is all I am after….

[Christopher]

Are you saving to 25x? 33x? Hoping for coast FI? Retire for 30 year? 60+ years? Expecting to deplete your portfolio, or amass dynastic wealth?

Each of those will greatly affect how you approach risk.
I shifted to lower risk assets about 3 years before retiring.

I didn’t really sell any existing holdings, I just put new savings into lower risk stuff after we hit our fi number (“once you’ve won the game, stop playing”).

I didn’t have any other milestones. I don’t have confidence in coastFI-type plans personally, so the only milestone was “hit my goal.”

[Author]

Posts