Gabe and Ryan let you know about risk and reward in retirement for the best rate of return in different markets.
Calculating Risk into Our Rate of Return Expectation
Rate of return is a function of risk. Risk level changes based on the individual and their unique circumstances. We have a metric or a gauge for what we think our retirees’ risk levels should be. There is a balancing act of not wanting to take too much risk, while trying to get a good rate of return.
Because of markets like the one we are currently in, it can be hard to stomach the losses that higher risk can bring. Whereas, with a properly balanced portfolio, you may not make as much in the up markets, but it certainly softens the blow in the down markets. So as much as we want to say there is one specific rate of return for everyone, it really comes down to being a function of the individual’s risk tolerance as a unique invester.
Deciding How Much Risk is Right for You
As far as ranges for rates of return in retirement, we want our retirees to be somewhere between 4.5% and 8% annual return, depending on how aggressive they are in their investments. If they’re targeting that upper end, it is important to expect more volatility and price change in their portfolio. The lower the rate of return expectation, the less volatility someone should experience. This allows for a smoother path into retirement, but it may not yield as much return.