Baby Boomers: How to Determine If You’re Taking Enough Risk in Your Retirement Portfolio

It’s not hard to imagine that retired and soon-to-be-retired Baby Boomers are increasingly risk-averse. Indeed, it’s an unwritten rule that you should take on less risk as you age.

And while not everyone subscribes to such a rule, especially those who’ve been life-long risk-takers, or those who have a nest egg that’s large enough to be unbreakable, I do think most Boomers may wish to err on the side of caution with their retirement portfolio if they have any jitters about the kind of market environment we’re wandering into right now. Even if stocks are humming along, the lessons of past bear markets, crises, and crashes are still worth thinking about.

Arguably, it’s when times are good that retirees should think about derisking their portfolios if they’re content with the size of their nest eggs and would rather ensure its safety and security than have it keep growing at a pace that it has in one’s working years.

What’s the right asset allocation for you?

As always, the right asset allocation will differ for everybody, including Baby Boomers who are retired. For some Boomers, a heavier weighting to stocks (think 70% or more in stocks) is right for them. For others, a 40/60 (40% stocks, 60% bonds) is a better fit. And, of course, on the extreme end, there are those who may get better sleep with far less than 30% in stocks at any given time.

Of course, let’s not forget about those who opt to bet a considerable portion of their portfolio on precious metals (gold and silver), real estate, alternative assets, and other instruments that can offer a decent return over time that’s less correlated with the stock or bond market.

Indeed, those going it alone without the help of a retirement planner may be inclined to err on the side of caution regarding their asset allocation. But is it possible to not be taking enough risk in (or near) retirement? I’d argue that it is technically possible.

Are you at risk of falling behind due to rising inflation?

There’s nothing wrong with being more conservative than your average retired Baby Boomer, assuming you’re naturally risk-averse and are intentionally more conservatively positioned with risk-free assets like CDs (Certificates of Deposit), and cash.

Also, if you’re heavier in bonds versus stocks because you’re not a fan of stock valuations and the inherent risks the asset class poses to your retirement, that’s completely fine. But if you just so happen to be heavy in cash and lower-risk assets because you’ve always avoided stocks for some reason or another (perhaps a close friend lost their shirt in the stock market), you may be so conservatively positioned that your nest egg could lose considerable purchasing power at the hands of inflation. If that’s a trade-off you’ve thought of and one that you’re willing to make, there’s no issue here.

However, if you’re worried about running short of cash in retirement, inflation poses a real risk that may need to be better managed by taking on a bit more risk with one’s asset allocation. For new retirees who expect to stay retired for 20 years or longer, your tolerance to take calculated risks, I believe, may be somewhat higher than you’d think.

Indeed, whether we’re talking about diversifying into dividend-paying utility stocks, real estate, or gold, such assets can help better hedge your nest egg from the impact of rising inflation.

The bottom line

In any case, if you’re risk-averse by nature but are open to learning more about whether you’re not taking enough risk in retirement, it’s time to reach out to a financial planner or advisor. It’s fine to take a more cautious approach, but, in my humble opinion, it is possible for such folks to not take enough risk, given the risk of inflation and its erosion impact on the dollar.

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