Looking back over your life, would you consider yourself a risk taker? If so, what kind? Was jumping out of a plane something you’d do without a second thought? Or was skiing down the bunny slope stout enough for your tastes?
No matter what kind of physical risks you took during your adult life, the older you get, the more your concept of acceptable physical risk is likely to change. As you begin to feel the kick back from your joints and the groans from your muscles, you may decide that the risks you would have once taken aren’t appropriate anymore.
The same can—and should—be said for the risks you accept when it comes to financial matters. As you age, there is less time acting as a cushion between you and retirement. That means you have fewer years to earn more money and to make up for losses you might experience due to the excessively risky investments you’ve taken on.
Many preretirees aren’t certain how they feel about the process of reducing financial risk over the years. After all, the closer you get to retirement, the smaller that pool of savings looks when compared to the number of years you will potentially have to live off of it—so doesn’t that make accumulation still a priority? But if you want to hold on to the money you’ve already made over the years, it’s important to switch your mindset from accumulation to preservation as you age. Only by doing so will you ensure that you actually have savings to rely on once you’re out of the workforce.
While it seems like a good idea to accumulate more savings by investing in risky assets far into your late 50s and 60s, it is actually better to consider adjusting your spending so that you can save more and spend less. Remember too that you can also control your spending after retirement so that your savings lasts longer. This doesn’t mean you’ll sacrifice all growth; your savings can still be invested in low-risk, guaranteed investments such as annuities, some of which may even offer you some guaranteed streams of income at a later date.
It took you a lifetime to earn the money you currently have saved for retirement, and it could take you just a few months in the wrong high-risk investment to wipe it all out. By switching your mindset from accumulation to preservation, you ensure that you’ll hold onto what you worked so hard to gather, and you won’t lose it all on one bad investment decision.