Understanding Risk Tolerance for Retirement

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn about risk tolerance in retirement planning. Discover how safe money alternatives can secure your future. Start planning today! Like everything else we do, saving for retirement involves risk analysis. We might not think about getting in the car to go to the grocery store, or even booking our dream vacation to hike the Inca Trail in Peru, as particularly risky decisions. But there are still elements of risk involved in every choice we make. Your risk tolerance will help to you maximize and protect your retirement savings when you make sound choices. As you save and near retirement, your risk tolerance should change, adapting to your financial and income needs. In order to manage your retirement planning effectively, you need to understand your risk tolerance, grasp your financial needs in retirement, and make effective decisions about your savings and asset allocation. Overall, you should be ready for a “smooth” financial transition into retirement – when you stop earning a full-time salary or business income, and start drawing on the savings you accumulated over many years. Working with a financial professional will help you meet your retirement income and financial goals, like the independent financial professionals at SafeMoney.com . Let’s go into more detail about risk tolerance and why it’s so important. What is Risk Tolerance? By definition, risk tolerance is the degree of volatility in financial returns that you are willing to endure. It is typically broken down into three distinct levels: Aggressive Moderate Conservative None of these levels is any better or worse than the others. Aggressive-minded retirement investors, or those with a high risk tolerance, are more willing to put money at risk in exchange for potentially more growth. Conservative-minded retirement savers, or those with a low risk tolerance, prefer options which will keep their principal, or initial retirement savings, intact. It’s not uncommon for someone’s risk tolerance to evolve as someone ages. For example, younger savers may structure their retirement money with a more aggressive risk tolerance because they have more time to ride out the peaks and troughs of the market. In contrast, those who are nearing retirement age may move their assets to more conservative p