Retirement is a bit like packing for the world’s longest vacation: you’re excited, maybe a little nervous, and absolutely determined not to run out of funds. But instead of worrying about missed flights or uncharged devices, your focus is on investment risk—navigating market swings, inflation, and the ticking clock that doesn’t pause for stock performance.

For investors 55 and older, the game isn’t about chasing the hottest stocks or being the retirement party’s biggest risk-taker. It’s about smart financial planning and managing investment risk to safeguard your hard-earned savings from unexpected setbacks that could disrupt your golden years. Buckle up, let’s explore how adjusting your portfolio now can help ensure a stress-free retirement.

Ways to Adjust Investment Risk When You Are Near Retirement

Understand Your Changing Goals and Timeline

As retirement approaches, your investment goals naturally shift. Earlier in life, the primary objective might be growing your wealth and taking advantage of opportunities for higher returns. However, the closer you get to retirement, the more important it becomes to protect what you’ve built. This means gradually focusing less on growth and more on preservation and income.

Reassessing your investment objectives is crucial at this stage. Ask yourself:

• How many years until I retire?
• What will my day-to-day expenses look like?
• Am I prepared for unexpected costs or medical needs?

To accommodate these changing needs, you might shift your portfolio to include more stable, income-generating investments such as bonds, dividend stocks, or annuities.

Preservation becomes a priority, aiming to reduce the likelihood of heavy losses at just the point when your ability to recover from them is limited. Reviewing and revising your goals can set a solid foundation for a stress-free retirement.

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Assess Your Current Risk Exposure

Knowing where you stand is essential before making any adjustments to your investment strategy. Evaluating your risk tolerance and current portfolio allocation is the best way to start.

Begin by measuring your risk tolerance. This is your comfort level with the ups and downs of the market, and it changes significantly as your retirement nears. Risk tolerance questionnaires help clarify your preferences and capacity to withstand market volatility.

Examine your portfolio’s current allocation. Are you heavily invested in stocks, or is your money spread across other assets like bonds and cash? Portfolio stress tests, available through many financial planning tools, allow you to simulate how your assets might behave during different market scenarios, helping you identify potential vulnerabilities.

Diversify to Mitigate Risks

Diversification is a cornerstone of smart investing, especially as you get closer to retirement. It means spreading your investments across different asset classes (such as stocks, bonds, and cash), various industry sectors (like technology, healthcare, and energy), and even global regions. By owning a mix of investments, you’re not putting all your eggs in one basket.

Why does this matter as retirement approaches?

If one sector or asset class takes a hit, your other holdings can help cushion the blow, reducing the overall impact of market downturns on your portfolio. Diversification can help smooth out returns and lower the risk of dramatic losses.

Reduce Equity Exposure and Increase Stability

As retirement draws nearer, many investors choose to dial down their exposure to equities (stocks), which are typically more volatile. Here are common approaches:

• Gradually trimming stock holdings: Shift some of your portfolio away from stocks toward more stable investments.
• Increasing allocation to bonds and fixed income: These typically offer lower risk and more predictable returns.
• Including annuities: Annuities can provide a fixed stream of income, helpful for covering regular expenses.
• Holding more cash or cash equivalents: This ensures liquidity and helps cover short-term needs.

Pros of reducing equity exposure:

• Lower volatility and risk
• More predictable returns
• A cushion against steep market declines

Cons:

• Potential for lower overall returns, especially if markets perform well
• Less growth to keep pace with unexpected expenses or longer life spans

Striking the right balance between growth and stability is essential. Many opt for a mix, combining stocks with bonds and other lower-risk assets, adjusting the proportion according to their comfort and income needs.

Consider Inflation Protection

Inflation is an often-underappreciated threat for retirees: even modest annual increases can erode the purchasing power of your savings over time. If your investments don’t keep pace with inflation, you may find your money doesn’t stretch as far as you expected years into retirement.

To guard against this risk, consider including assets that help hedge against inflation. Some options include:

• Treasury Inflation-Protected Securities (TIPS): These U.S. government bonds automatically adjust with inflation, helping preserve value.
• Real estate: Property values and rental incomes often rise with inflation.
• Commodities: Investments in areas like gold or oil can perform well when prices rise.

Mixing inflation-protected assets into your portfolio offers reassurance that your retirement savings will retain their spending power, no matter how the economic environment shifts.

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Manage Longevity and Withdrawal Risks

As life expectancies extend, retirees must ensure their savings last for several decades. Planning for longevity means creating a strategy that anticipates living well into your 80s or 90s. One key concept is the safe withdrawal rate, typically around 4% per year, to help prevent running out of money.

However, this rate isn’t guaranteed and can be impacted by market volatility, especially in the early years of retirement; this is known as the sequence of returns risk. If you experience poor returns early on, your portfolio may shrink faster, making it harder to recover.

To mitigate these risks, older investors can:

• Reduce withdrawals during down markets.
• Maintain a diversified portfolio to cushion the impact of volatility.
• Consider annuities or other lifetime income products that provide predictable payouts.
• Adjust spending plans based on portfolio performance.

Implementing these approaches helps protect retirement income and maintain financial stability throughout a potentially long retirement.

Build Flexibility into Your Plan

Retirement rarely unfolds exactly as planned. Unexpected medical expenses, home repairs, or market downturns can occur. That’s why flexibility in your financial strategy is essential.

Make sure to:

• Maintain emergency reserves to cover sudden costs.
• Keep a portion of your assets in liquid investments, such as cash or short-term bonds, for easy access.
• Regularly review and adjust your portfolio to respond to changing circumstances, goals, or market conditions.

Periodic reviews help identify risks, rebalance investments, and ensure your plan remains aligned with your needs, offering confidence and adaptability.

Work With a Financial Adviser

Navigating retirement risk management is complex, and professional guidance can add tremendous value. A financial adviser can:

• Help tailor your plan to fit individual goals, risk tolerance, and time horizon.
• Suggest strategies for minimizing the sequence of returns risk.
• Optimize withdrawals and manage taxes.
• Select appropriate investment products for your situation.

Key questions to ask your adviser include:

• How do you manage market volatility risk for retirees?
• What is a sustainable withdrawal rate for my portfolio?
• How will health costs and inflation be addressed in my plan?
• Can you suggest products for guaranteed income or inflation protection?

Personalized advice ensures your retirement strategy is well-structured and responsive to evolving risks.

Take Advantage of Catch-up Contributions and Financial Tools

As you near retirement age, there are opportunities to boost your savings. U.S. retirement accounts, such as 401(k)s and IRAs, allow individuals over 50 to make extra “catch-up” contributions, increasing annual savings and benefiting from tax advantages. Explore:

• Maximizing contributions to tax-advantaged accounts for faster growth.
• Automating your savings to maintain consistency.
• Use portfolio rebalancing tools to regularly align assets with your updated goals and risk tolerance.

Leveraging these options can make a significant difference, offering a cushion of security as you transition into retirement.

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Conclusion

As you approach retirement, adjusting investment risk is critical to protecting your savings and ensuring a steady, comfortable future. Reassessing your financial goals, diversifying your portfolio, and reducing exposure to high-volatility assets are key steps—but tools like Beem can make the process smarter and easier.

Beem helps you track your portfolio and retirement savings in real time, model “what-if” scenarios, and monitor your exposure to higher-risk investments. Its goal-oriented buckets let you set aside funds for retirement while maintaining liquidity for emergencies. With Beem’s Everdraft™, you can access $10–$1,000 of verified bank deposits early, avoiding the need to sell investments at an inopportune time. Automated alerts and insights help you stay informed, adjust contributions, and make data-backed decisions to manage investment risk effectively. Download the app for more details.

A flexible approach is essential—review your investment strategy annually, leverage professional advice, and use Beem’s AI-powered tools to stay proactive. By combining thoughtful planning with smart technology, you can safeguard your portfolio, reduce risk, and move confidently toward a secure, fulfilling retirement.

FAQs on How to Adjust Your Investment Risk as You Near Retirement