Traditional retirement planning advice about risk management does not serve many investors well. Through our 15+ years of experience advising successful professionals and wealthy international families, we have identified a recurring mistake: the misunderstanding of risk.
Many investors stay away from risk completely. Inflation slowly erodes their wealth. Others unknowingly expose their financial plan to excessive risk. The appropriate strategy for managing €50 million in family wealth significantly differs from the strategies suitable for €2 million or €10 million. Most conventional financial retirement advice misses this vital detail.
Old one-size-fits-all models do not work anymore. You need a customised approach that matches your specific situation. Risk management becomes vital if you have retirement funds that could drop 20–30% in just a few years. Your portfolio size and personal comfort level reshape what effective risk management looks like, even when spending goals are similar.
Why traditional risk advice falls short
Traditional retirement planners have been using standardised risk models to plan everyone’s financial futures for decades. Recent research shows major flaws in this approach that could put your financial security at risk.
One-size-fits-all models don’t work
Standard retirement solutions no longer meet what modern retirees just need. The data reveals that 67% of defined contribution pension holders are willing to switch providers to obtain more flexible pension access and improved financial tools. More than 41% of people with private pensions want on-demand access instead of fixed monthly payments.
For too long, pension providers have entirely focused on quantitative retirement metrics and not on quality of delivery for the person in retirement. This gap shows how traditional models fail to account for your personal situation, priorities, and local living costs.
The myth of avoiding all risk
Traditional advisors often push “conservative” portfolios for retirees. This strategy creates its own set of risks. Portfolios that generate only 4–5% returns might not be enough for longer retirements. These supposedly “lower risk” portfolios could actually increase your chance of running out of money over time.
Life expectancies keep going up, and what we call “prudent” retirement planning could backfire. Overly cautious retirement planning may not adequately prepare retirees for inflation and longer lifespans.
Why outdated rules can hurt your retirement
Many traditional retirement rules have become obsolete and dangerous:
- The 4% withdrawal rule assumes a 30-year retirement horizon, yet many retirees now need their savings to last substantially longer
- Age-based asset allocation (subtracting your age from 100 for stock percentage) ignores your personal risk tolerance and goals
- Saving a fixed percentage (typically 10%) doesn’t match your unique financial obligations and income potential
Retirement strategies focused only on assets (backed by Modern Portfolio Theory) miss long-term payout considerations and client goals. These old approaches can’t handle inflation, increased longevity, and sequence risk at the same time.
Your retirement future needs a more individual-specific approach that takes into account your unique circumstances, goals, and needs.
The smarter way to think about risk
Modern retirement planning goes beyond old-fashioned risk models. Your unique financial situation deserves a more sophisticated approach rather than a standardised solution.
Introducing the C.A.N. framework
The C.A.N. framework offers three distinct dimensions to manage retirement risk effectively. This comprehensive method looks at your complete financial picture, including your capacity to handle risk, your attitude towards market changes, and your real need for portfolio growth.
Capacity: What your finances can handle
Your financial capacity shows how well you can handle market downturns without disrupting your lifestyle. Your risk equation is shaped differently depending on your time and available funds, as opposed to using a universal approach. Someone with millions in assets naturally handles risk better than a person with similar expenses but fewer savings. On top of that, younger investors usually have more capacity since they have time to bounce back from losses.
Attitude: How you react to market swings
Your emotional response to investment volatility is vital for successful planning. People who are more risk-averse tend to make retirement plans more often. Knowing how comfortable you are with market swings helps prevent rushed decisions that could hurt your retirement strategy.
Need: How much growth you actually require
Your portfolio needs to generate specific income when your regular pay cheque stops. This means looking at your lifestyle expenses and guaranteed income from sources like pensions and Social Security. Understanding your exact income needs helps create an investment approach that works for your specific situation throughout retirement, rather than following general advice that might fall short.
Real-world examples that break the rules
Real-world retirement scenarios demonstrate why individual-specific strategies often defy conventional wisdom. These examples show how different financial situations just need tailored approaches to risk.
Case 1: High wealth, low need for risk
John and Stephanie, ages 73 and 71, retired with substantial assets. Traditional advice pushes for continued growth, yet its main goal has changed towards minimising market volatility and reducing taxes. Their accumulated wealth lets them benefit from a lower-risk investment portfolio that generates dependable income they cannot outlive.
High-net-worth retirees benefit when they put stability ahead of growth. Through careful planning with their advisors, they managed to:
- Cut down current and future tax liability by a lot
- Create a more conservative portfolio while generating required income
- Boost their charitable contributions without compromising financial security
Case 2: Moderate wealth, high need for growth
Moderate-wealth individuals often just need more aggressive growth strategies. A 45-year-old with modest savings would have to invest approximately €1,500 monthly to achieve retirement goals like those reached by younger investors who contribute much less. Traditional conservative approaches do not provide the necessary returns.
Kate, a 67-year-old medical specialist, fits this scenario perfectly. Her age suggests conservative investments, yet she just needed a customised strategy to build €74,430 in annual retirement income. Her specific circumstances called for growth-orientated investments even during retirement.
Case 3: Balanced wealth, flexible strategy
Most retirees benefit from flexibility rather than rigid rules. Financial experts now recommend the “bucket strategy” as an alternative to conventional approaches. The quickest way divides retirement savings into three distinct portfolios:
- Cash buffer – One to two years of expenses in available accounts
- Drawdown portfolio – Four to five years of income needs in lower-risk investments
- Growth portfolio – Remaining assets invested for long-term appreciation
This all-encompassing approach helped Sarah, age 66, create tax-efficient income while keeping growth potential. She consolidated assets into an appropriate investment portfolio and implemented strategic tax planning that helped her keep her lifestyle after leaving full employment.
How to build your own risk strategy
Your unique financial situation forms the foundation of a tailored retirement risk strategy. This strategy should reflect who you are as a person, not just follow standard market models.
Step 1: Assess your financial capacity
Your financial capacity covers both day-to-day finance management and decision-making abilities. You need a clear picture of your current financial position before setting risk levels. Look at your savings, investments, and potential income sources. This review helps you understand how your finances might handle market ups and downs.
Step 2: Understand your emotional tolerance
Market dips might seem small while you’re working but can feel devastating once you retire. You’ll make better decisions during market swings when you know your comfort level with financial uncertainty. Risk tolerance often changes with age and life events, so many retirees review theirs yearly.
Step 3: Define your retirement goals
A proper risk strategy needs clear retirement goals. Your specific objectives will shape your savings approach and investment choices. Think about your lifestyle dreams and how many years your savings must last. Research shows most retirements last about 20 years.
Step 4: Match your investments to your needs
Please select investments that align with your overall picture once you have assessed your capacity, tolerance, and goals. Look at growth potential, guaranteed income sources, flexibility needs, and ways to preserve your principal. This approach makes your portfolio truly yours, built around your specific needs.
Step 5: Revisit your plan regularly
Life changes, and your retirement strategy should too. Yearly reviews help you adapt to changes in your job, income, family life, and finances. These check-ins let you adjust for economic changes, new tax rules, and your evolving retirement dreams.
Conclusion
Generic retirement advice doesn’t work. One-size-fits-all solutions should not be applied to your financial future. Standard risk models miss many personal factors that shape real financial security.
Your retirement plan should match your life – not some outdated formula. The C.A.N. framework gives you a smarter way forward. It looks at what your money can handle, how you feel about market swings, and the growth you need to keep your lifestyle.
People often think all retirees need conservative portfolios. That’s not true. The right strategy depends on you. Some retirees with big savings might want less risk. Others with moderate savings might need more aggressive growth, even later in life.
The bucket strategy helps you balance today’s income needs with future growth. This approach gives you both safety and growth chances in any market.
Your retirement plan needs to grow with you. Regular checkups make sure your strategy lines up with your goals, market shifts, and life changes.
Smart retirement planning isn’t about rules – it’s about knowing your comfort with risk. Look at your money situation. Know how market swings affect you. Set clear goals. Match investments to your needs. Check your plan often. This technique creates something much more valuable than a standard retirement plan. It builds lasting financial confidence through your retirement years.
[…] desire to keep things the same substantially disrupts retirement planning. Studies show that status quo bias makes people less likely to take action with their retirement […]