When clients come in for the first time, they tend to arrive with a version of the same conviction: "I know I need to get more conservative. I'm getting closer to retirement." It sounds responsible, and for most of their careers, it's what they've heard from every direction. I push back on it, not because the instinct is wrong, but because, applied as a blanket rule, without understanding what a specific plan actually requires, it can subtly undermine the financial independence it was designed to safeguard. Reaching the age where you feel ready to stop working is a milestone, but if you retire at 60, there are potentially 30 to 40 more years to plan for, and the money still needs to work
What Actually Erodes a Retirement Portfolio
Most people entering retirement focus on one risk: market volatility. It's visible, it's visceral, and it's easy to point to. What's harder to see, and in many cases more damaging over time, are the forces that erode spending power quietly:
- Inflation. Not the headline figure, but the version that applies to how high-income households actually want to live. Travel, family experiences, and gifting to the next generation tend to inflate at a meaningfully higher rate than the broad consumer price index.
- Taxes. As retirement accounts grow and required minimum distributions increase, a larger and larger portion of each withdrawal goes to taxes rather than lifestyle. The amount someone planned to live on requires a progressively larger withdrawal to actually deliver, and that gap widens considerably over time.
Risk Tolerance vs. Risk Capacity
There's a line worth drawing here, because it clarifies most of the confusion clients bring into this conversation. Risk tolerance is how you personally feel about volatility, how much you can watch the number move before it affects your decision-making. Risk capacity is different: it's what your plan actually allows, whether you can afford to take less risk and still work toward your goals, and whether you can afford not to take enough risk to keep pace with your lifestyle over a retirement that may last three or four decades. One is a personality trait, the other a math problem, and the confusion between the two is where most planning mistakes happen. A client who avoids the short-term discomfort of volatility may end up accepting a long-term shortfall that's far more disruptive, and a client who wants double-digit growth with minimal risk hasn't resolved a tension, only deferred it
The Structure That Makes Staying Invested Possible
None of this means that comfort and confidence are irrelevant, and the goal isn't to simply hold on and ignore volatility. I structure portfolios to address short-term cash flow needs directly: six to nine months, sometimes a year, set aside in liquid, lower-volatility instruments like money market funds, treasury bills, and short-term fixed income. This is the portion of the portfolio a client doesn't have to think about when the equity side has a difficult quarter, and it's what allows the long-term allocation to stay appropriately invested rather than forcing a sale at the wrong time. [Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features, and credit risk (116-LPL)]. The short-term bucket isn't the conservative allocation. It's the buffer that makes holding the rest of the portfolio possible.
What Getting Risk Wrong Usually Looks Like
The most common version of the mistake isn't recklessness. It's taking risk, or avoiding it, without a clear rationale attached to either choice. People generally get risk wrong when they don't have goals attached to the money, and without understanding what you're actually working toward, when you plan to stop working, how much you'll need, what your spending looks like over 30 years, allocating a portfolio without that clarity is essentially guesswork. The benchmark that actually matters isn't an index or a neighbor's returns. It's the plan: specifically, what rate of return do your goals require, and does your portfolio reflect that?
When the plan is clear, short-term noise becomes easier to hold. The portfolio's job is to serve the plan, not respond to the headlines. The clients who understand that distinction tend to make the decisions that serve their long-term interests, even when it's uncomfortable in the short term.
If you're within a few years of retirement and haven't stress-tested what your plan actually requires, that's the conversation worth having now. Reach out at vanleeuwen.com to schedule a complimentary consultation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. An investment in a Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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