Common Retirement Question: Should I be more conservative near Retirement?

Key Takeaways

• Calculate your required minimum rate of return through financial planning rather than relying on risk tolerance questionnaires, which fluctuate based on current market conditions; if you can earn 4.5% safely but only need 3%, you don't need much risk, but if you need 8%, you must take on some equity risk to have any potential of reaching that goal
• Consider the "bond tent" strategy: build up fixed income holdings (CDs, Treasury bills, agency bonds) 5-7 years before retirement and into your first 5 years of retirement to protect against market downturns, then potentially shift back to higher equity allocations as you move deeper into retirement when those bonds mature
• Account for all sources of guaranteed income (Social Security, pensions, mortgage payoff) in your overall cash flow plan first, then determine what your investment portfolio actually needs to generate; this customized approach is more reliable than assuming you can take on more risk just because you have pension income
• Avoid the traditional "100 minus your age" rule because it's overly conservative and may not generate enough growth to keep pace with inflation throughout a multi-decade retirement
• When evaluating financial advice you read, identify the time frame each advisor is using (3 months, 1 year, 5 years, or 10+ years), as multiple seemingly contradictory strategies can all be correct depending on their intended time horizon