Your asset allocation in retirement has 2 key variables: Risk and time.

In your working years, regarding your asset allocation, you were taught to focus almost exclusively on risk. You probably filled out risk evaluation surveys for your 401k and other investments. But there’s a 2nd variable not talked about enough, and that variable is time.

Most retirees believe they’re set when it comes to asset allocation.

The 2nd mindset shift you need to have going from your working years and into retirement is regarding asset allocation. Most people think they have this taken care of, but there’s a change of mindset needed here as well.

My thought process for helping retirees is a little different than other advisors. I’m teaching people how to retire. Most financial advisors tend to focus almost solely on asset allocation because, put simply, it’s what they’re getting paid to do.

They get paid to invest your money and then they call that “asset allocation.” They talk almost exclusively about risk, and risk is very important. If you’ve filled out any of those crazy risk questionnaires in your 401k you’ll be asked questions such as, “Are you comfortable with losing this much money?” Or “What’s your timeframe?”

What they’re really trying to determine is if you’re conservative, aggressive, or moderate. And those questions are all important.

And in your working years risk is the most important variable. If you’re managing your risk efficiently that’s very, very good!

But when you retire a 2nd variable comes into play. Yes, this 2nd variable is there when you’re working, it’s just that this variable doesn’t change. It’s a constant.

The 2nd variable when you retire is TIME, and it’s really important!

We’re not talking about the time from when you’re going to die. It’s time from when you’re going to spend a dollar. What do I mean by that?

In your working years, if you’re saving for retirement, if you’re putting money in your 401k, and your IRAs, etc, then in theory you’re not going to touch that money for quite some time.

When we’re at retirement, all of a sudden we’re going to need some of that money. We need to be able to spend that money. I refer to this as “now money.” It’s money you need to spend in the next 1-3 years.

You’re going to spend that money no matter what happens with the stock market, the federal reserve, etc. Regardless of what’s happening, you’re going to need to spend that money.

We take a heck of a lot less risk with your “now” money than we do with money that you might not spend for the next 5, 10, or 15 years. We can take more risk with that longer term money.

Understanding the variable of time and incorporating that into your asset allocation, is extremely, extremely important.

We take a lot less risk with this “now” money than we can with your long term (5, 10, 15 years) money.

I hope you got some value out of the video we just shared with you. And if you know somebody else that could find value in this, please feel free to share it with them. If you yourself would like to talk further about this, please use the link below to book a 15 minute phone call with our office. Thanks.