Can I Take On More Risk?

Summary

Podcast Title: Can I Take On More Risk?
Host: Audacy
Episode Release Date: February 26, 2025

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Introduction

In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger, along with her executive producer Mark, delves into the nuanced topic of risk in retirement investing. The episode, titled "Can I Take On More Risk?", features a listener call-in from Therese, a 64-year-old from Michigan, who seeks guidance on whether she should adopt a more aggressive investment strategy as she approaches retirement.

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Caller Profile: Therese's Financial Situation

Therese initiates the conversation expressing her desire to evaluate her current retirement investment strategy. At [03:20], she states:

Therese: "I'm trying to determine if I could be a little more aggressive with my retirement investments. I'm 64."

Therese is married, both she and her husband are 64 years old. She earns approximately $175,000 annually as an accountant, while her husband, a self-employed handyman, earns about $45,000 per year. The couple is financially stable, owning their home valued at $450,000 with a remaining mortgage of $290,000 at a favorable interest rate of 2.9% ([05:44]).

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Current Investment Portfolio

Therese outlines her investment landscape during the call. She has accumulated:

• 401(k): Approximately $175,000
• Solo 401(k) for Husband: About $43,000
• Emergency Savings: $55,000
• IRAs: Around $12,000, which she aims to consolidate

Her combined monthly retirement contributions amount to $1,300 per pay period, totaling roughly $2,600 monthly, supplemented by an additional $800 into savings ([07:21]).

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Investment Allocation Analysis

As Mark probes deeper, Therese reveals the composition of her retirement accounts at [10:16]:

• 20% in Aggressive Growth (mid-cap and small-cap stocks)
• 40% in a S&P 500 Index Fund
• 10% in an International Equity Index Fund
• 10% in a High-Yield Bond Fund
• 20% in a Total Bond Fund

Mark assesses this allocation and identifies potential over-aggressiveness, considering their age and nearing retirement:

Mark: "You're taking plenty of risk. I don't need you to take any more risk. Okay. It's unnecessary probably to have the aggressive growth." ([12:58])

He suggests adjusting the portfolio to a more balanced 60% stocks and 40% bonds to mitigate excessive risk without significantly compromising potential returns ([13:28]).

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Discussion on Risk and Future Planning

The conversation emphasizes the balance between risk and return, especially for individuals close to retirement. Mark highlights that higher risk does not necessarily guarantee proportional returns:

Robert Half: "More risk doesn't really mean a much bigger return. [...] a 70/30 portfolio averages a 9% return, whereas a 40/60 is 7.6%." ([14:07])

He advises that Therese and her husband should consider their comfort with market volatility, especially as they plan to work until age 70, potentially continuing part-time employment if necessary:

Mark: "Are you willing to forego some of the up? That's really the question now, Therese." ([14:46])

Therese acknowledges the importance of not having to withdraw funds during a market downturn:

Therese: "If we don't work part time after 70, I'm going to have to start accessing these funds." ([15:49])

Mark reinforces the necessity of aligning investment strategies with personal risk tolerance and future income plans.

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Recommendations and Key Takeaways

Mark recommends that Therese consider shifting her asset allocation to 65% stocks and 35% bonds as a middle ground, allowing for growth while reducing excessive exposure to stock market volatility:

Mark: "Maybe you go 65/35. Maybe just consider it, talk to your husband, see how you feel." ([16:19])

He underscores that taking on additional risk should only be pursued if one is comfortable with the potential downsides:

Mark: "Risk is a four letter word. [...] It just means you have the ability to maybe increase that rate of return." ([16:07])

Therese reflects on the possibility of needing to access her retirement funds earlier than planned and the implications of a market downturn at that time.

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Conclusion

The episode concludes with Mark and Jill encouraging listeners to evaluate their investment strategies critically, especially as they approach retirement. They emphasize the importance of understanding one's risk tolerance and the potential long-term impacts of investment decisions.

Jill Schlesinger: "Let us know what you decide." ([17:24])

Listeners are invited to reach out with their financial questions and engage with the community through the show's website.

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Notable Quotes with Timestamps

• [10:02] Therese: "I'm showing like 75% in domestic stock. Okay, so that seems kind of aggressive."

• [12:58] Mark: "You're taking plenty of risk. I don't need you to take any more risk."

• [14:07] Robert Half: "More risk doesn't really mean a much bigger return. [...] a 70/30 portfolio averages a 9% return, whereas a 40/60 is 7.6%."

• [16:07] Mark: "Risk is a four letter word. [...] It just means you have the ability to maybe increase that rate of return."

• [17:24] Jill Schlesinger: "Let us know what you decide."

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Key Insights

• Risk Assessment: It's crucial to align investment strategies with personal risk tolerance, especially nearing retirement.

• Asset Allocation: A balanced portfolio, such as 60/40 (stocks/bonds), may offer a compromise between growth potential and risk mitigation.

• Future Planning: Consideration of part-time work post-retirement can provide additional financial security and reduce reliance on investment withdrawals.

• Market Volatility: Understanding and accepting the inherent fluctuations in the market is essential to avoid making impulsive financial decisions.

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For further financial guidance and personalized advice, visit jillonmoney.com and explore the wealth of resources available.

Transcript

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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[Mark]

All of it.

[Jill Schlesinger]

And we trust you to make smart decisions. After all, you listen to this show see [e-mail] credit card.

[Mark]

Welcome to the Jill on Money show. It's Wednesday, February 26th. Yes, spring is coming, gang, but it has been a long February for all of us. And if you want to snuggle up to your cash register instead of your very delicious blanket, why don't you get in touch with us? Because maybe you're clinging too much to that money issue that's coding in your head. We've been talking to a lot of people lately who just can't quite free themselves and let themselves spend and enjoy their lives. We want to do that for you or with you. So if you need some guidance, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, and if you would like to join us live on the air, check the box. Mark, the best executive producer in the world, will do everything else. And by the way, while you're on the website, don't forget we've got a ton of content that lives there, including our free weekly newsletter and our subscription service. It's called Jill on Money Live. That is where for $45 for the next 12 months, you have access to four live webinars. The next one is coming up Thursday, March 6, 7 Eastern Time. Ed Slott, CPA, IRA expert, amazing expert on the Roth as well. He will be in that webinar with us. And we'll be able to field your questions live with Ed, which is so much fun. So you can do that again. If you are a subscriber to Jill on Money, Life just cost you 45 bucks. You'll get bonus audio and video content, the back catalog. It's a great deal. All right, enough of that right now. Let's go talk to Therese, who's on the line from Michigan. Hello. How are you?

[Therese]

I'm very well. How are you doing?

[Mark]

Great. What can we do for you?

[Therese]

Well, I am trying to determine if I could be a little more aggressive with my retirement investments. I'm 64.

[Mark]

Okay.

[Therese]

And so everything I look at kind of has me be a little more conservative. And I'm a little late to the game, so I'd like to increase my. My investments as best I can.

[Mark]

Look at you. You couldn't have asked me this 10 years ago? Now you got to do it after the market's gone up. Okay, so you're 64. Are you single, married, Partnered?

[Therese]

Married.

[Mark]

Okay. How old is your spouse?

[Therese]

64.

[Mark]

Okay. Are you guys both working?

[Therese]

Yep.

[Mark]

Okay, tell us how much do you guys make?

[Therese]

I make about 175 and he is self employed handyman at about 4.

[Mark]

Okay, got it. Tell us how your cash flow is on that combined income right now. Good, bad. Do you feel under pressure? You feeling okay?

[Therese]

No, we feel okay. I mean, we're putting away into savings as best we can. So, you know, I always know that there's. That I have to lighten up a bit to manage a month or whatever.

[Mark]

Okay. How much do you put into your retirement? Do you. Do you max out your retirement plan through work?

[Therese]

No, I don't. I am limited because I'm highly compensated. So I'm in manufacturing and we don't have a lot of contributions happening here. So anyway, I'm limited on that. We do have a solo 401k for my husband, so between the two, we're about 1300 a pay period.

[Mark]

So you're putting a bunch of money away. I mean, it's not like insignificant. How much is in your 401k?

[Therese]

Right now I've got about $175,000.

[Mark]

And his solo about 43. Okay. Do you have other assets that you've.

[Therese]

Invested in other than, you know, I have a emergency savings of about 55 and I've got a couple small IRAs that I'm trying to combine into just one thing if I can. But maybe, maybe 12,000 on that.

[Mark]

Okay. And you guys own your home?

[Therese]

We do.

[Mark]

How much?

[Therese]

Right?

[Mark]

Not yet. How much is it worth?

[Therese]

It's worth about 450. We've got about 290 left on the mortgage. 2.9%.

[Mark]

Oh boy, that's great. Fantastic. No extra payments on that, right?

[Therese]

No.

[Mark]

Okay, Good. Okay. So 401k solo, 401k savings, assorted and sundry IRAs, a house. Any other assets that you own?

[Therese]

Nope.

[Mark]

Okay. He's self employed. Will you be entitled to a pension?

[Therese]

I will not.

[Mark]

Okay, what's the game plan in terms of how long you're going to keep up this earning capacity?

[Therese]

I think our plan is to work until we're about 70 and I suspect given our abilities and, and just our life that will probably do something part time. He may just take a few jobs a week in his handyman thing. And I'm an accountant, so I may, I work for a individual company that has a bunch of subsidiaries so I may just keep going with one or two of those part time.

[Mark]

Okay, how much do you think you need or how much are you spending.

[Therese]

Right now without any travel? A bit about eight a month.

[Mark]

Let's add the traveling. Is that, add another couple grand like for sure. Okay, for sure.

[Therese]

It's all over the place.

[Mark]

Do you guys have grown children?

[Therese]

I do. I have a 34 year old, a 33 year old and a 30 year old.

[Mark]

And those kids are launched and. Okay.

[Therese]

100%.

[Mark]

Oh God. Thank goodness.

[Therese]

Oh yeah.

[Mark]

I mean. Okay, so we need to get you guys at age 70, 10 grand a month in income. Right. And so what will your Social Security benefit be at age 70?

[Therese]

Combined will be about 82, 8200. Yep.

[Mark]

Okay, if you had to guess, I don't want to go crazy with this because I don't want to make you like really. But like if you were going to do some extra part time work, what, what do you think that that would amount to on a. Either a monthly or an annual basis?

[Therese]

I would probably think that I would be earning, I don't know, maybe 25. Okay, 30 and my husband, 20 a year. Actually mine would probably be higher than that. Let's, let's say 35 for me and 20 for him.

[Mark]

Do you think it's fair to say that that would be like a five year thing or do you think just a few years? Like what do you. I don't want to put the bar too high for you.

[Therese]

Yeah, I understand that. I would say, I guess it depends on how much we love retirement, right?

[Mark]

Right.

[Therese]

I would say maybe just for this calculation, three years.

[Jill Schlesinger]

Three years.

[Mark]

So 70 to 73 essentially. Okay. Obviously Social Security plus that part time income gets you everything you need. And we can just let your investments grow. Right. That would be a big issue. So for you right now, what are you putting? You're putting away. You said 2,600amonth. Is that what you said? 1300 a pay period?

[Therese]

Yep.

[Mark]

Okay, so are you doing anything else in addition to that? 2,600amonth into retirement? Are you putting money into savings? Is that something you'd like to do? Where are you with that?

[Therese]

I am actually. I'm putting, I would say most months, maybe 800 into savings.

[Mark]

Anything big that's coming up, besides like anything in the house, do you need a new car, anything like that?

[Therese]

We will probably end up needing a new car, but I don't see that happening for maybe three or four years.

[Mark]

Okay, got it. For your retirement investments. And when you say can, like you started this, I'm so nosy. It's like, can I be more aggressive with my retirement accounts? Most people would be like, tell me what the aggressive, what the investments are. But I didn't do that. Right. So I made you do all this other work. So if you look at your retirement accounts, what are, how are they allocated right now? And what would you want to make it be if it were more aggressive?

[Therese]

Well, you know, it's funny because I actually printed off my investments this morning and I think I might be a little more aggressive than I thought I was.

[Mark]

Aha. Tell us more. Well, what do you got?

[Therese]

I'm showing like 75% in domestic stock. Okay, so that seems kind of aggressive.

[Mark]

Yeah, that, that's, that's there, that's right there. I mean, that's your 30, 33 and 34 year old kids as far as I'm concerned. Is it maybe that you didn't realize that there was some overlap in some of the funds?

[Therese]

I think that is definitely the case because when I look at it, it's like, whoa, why do I have all these funds? And that was kind of what drove me to this whole question. Because I'm trying to consolidate everything. It's everywhere. And with that, obviously I'm looking at what investments they have. So now I'm focusing on my investments and maybe I Should change the title of this. Am I too aggressive?

[Mark]

Yeah, right, exactly. I've gone from not enough to maybe too much so in the domestic stock funds. You don't need to. Hopefully we're not going to touch these accounts. Hopefully. And again, you're going to work until you're age 70. You'll have 70 to 73 of, you know, part time income. So really we're not talking about money that you need anytime soon. We have this nine, ten years before you might start pulling money out of the accounts. Right?

[Therese]

Yep.

[Mark]

So in that respect, if you said to me that I want to be, you know, 70, 30, because I can take it, fine. But what you better be sure to understand is that between now and that age 73, you are going to see these accounts plummet at some point.

[Therese]

I know, I know.

[Mark]

And so I need to know from you guys how you feel about that.

[Therese]

Well, luckily I'm not one of those who looks at my account on a regular basis. So hopefully the time I do decide.

[Mark]

To look at it, it's not so bad. So, so let me ask you this. Do you happen to have your 401k plan in front of you and what that looks like?

[Therese]

I do.

[Mark]

What? Tell me what the allocation looks like there.

[Therese]

So It's, I've got 20% in aggressive growth, which is mid cap and small cap.

[Mark]

Good lord, keep going.

[Therese]

And then I've got 40% in a 500 index fund.

[Mark]

Yep.

[Therese]

10 in an equity index fund.

[Mark]

Okay.

[Therese]

And then I have 10% in a high yield bond fund and 20% in a total bond fund.

[Mark]

Okay. So this one you're 70, 30 also.

[Therese]

Okay.

[Mark]

Okay. So you're, you're taking plenty of risk. I don't need you to take any more risk. Okay. It's unnecessary probably to have the aggressive growth.

[Therese]

Okay.

[Mark]

And the equity index, is there a name in front of that like this blankety blank equity index.

[Therese]

It looks like an international equity index.

[Mark]

Okay, so that's international. Okay, good. I would probably go put 20% of my aggressive growth and I just put into the index fund and make that 60% in your index fund, 10% in equity index. And instead of a high yield bond fund, I probably would just have 30% in a boring bond index.

[Therese]

Okay.

[Mark]

Now none of this reduces your risk dramatically. You would still be 70, 30.

[Therese]

Okay.

[Mark]

That's a lot of risk for a 64 year old normally. But if you can assume the risk and you feel like you're comfortable and you're like, oh well, if I happen to like see this thing Plummet. I promise you, Jill, pinky swear. I'm not gonna move everything around at the wrong moment. You can do it.

[Therese]

No, I'll leave it alone.

[Mark]

If you're in your husband's. You wanna, like, be a little bit less aggressive, and you say, well, you know what? Let's make him 60, 40. It's up to you if you can assume the risk, knowing that what I just told you, like, this is going to plummet at some point in the next nine or 10 years. There's no doubt in my mind. You have to be willing to just live with that. And if it's really at the wrong time, maybe I'm gonna say to you, well, you know what? I'd rather you not start pulling money out of this thing at your 72. Maybe you could work for two more years. Not one more year.

[Robert Half]

And by the way, more risk doesn't really mean a much bigger return. I mean, going back all the way to 19, 26. And if you're just looking at the returns, 70, 30 portfolio averages a 9% return, whereas, you know, a 40, 60. 40 stock, 60 bond is 7.6. So you're not gaining.

[Mark]

That's me, baby. 40 stocks, 60 bonds.

[Robert Half]

You're not gaining that much.

[Mark]

So that's really.

[Robert Half]

And you'll be protected more.

[Mark]

That's the thing that you have to really have a conversation about. Do you feel comfortable living with the downs? And are you willing to forego some of the up? That's really the question now, Therese. It's really. It is up to you. This is a lot. Personal preference. I'm not going to tell you what to do here if you feel comfortable with it. But I promise you that when that bottom falls out, as you get older, it's harder to take it.

[Therese]

Yeah, I bet. Yeah.

[Mark]

So if you feel like, oh, you know what? I don't have to go so crazy, then just go 60, 40 instead of being 70. Listen, you've made a lot of money over the last 10 years with these allocations. You really have. So it would not hurt you in any big way for the next 10 years to be 60, 40, 60 stock, 40 bond. That would be okay. If you're like, my pal and you're calling me and we're sitting, you're like, let's go have a drink. Look at my allocation. That's what I would do. But I am not you, and I have a very weak capacity to take losses.

[Therese]

Well, what I'd hate to have happen is, you know, fast forward to age 70, and we say you know what? We really don't want to work part time. I mean, I don't know how I'm going to feel in six years. Right?

[Mark]

Yeah.

[Therese]

And then it happens to be a down market or whatever.

[Mark]

Right? Right.

[Therese]

If we don't work part time after 70, I'm going to have to start accessing these funds. Okay, let me ask you this. Can I just, maybe for the next three or three years, be more aggressive?

[Mark]

Yeah. What happens if the stock market falls out of bed in the next three years? We've just come from. Just remember, we've just had two phenomenal years in a row. So let's not be too piggish. Maybe you can just. How about this? Maybe you go 65, 35. Maybe just consider it, Talk to your husband, see how you feel. Don't go crazy. I mean, you're. You're gonna be in good shape. You really are. You're gonna. You're willing to work, you're putting your money away. You're doing what you should be doing. I just want everyone to hear this, which is risk is a four letter word. It does not, as Mark said, it doesn't guarantee that you will make more money. It just means you have the ability to. To maybe increase that rate of return. So if you're good with smoothing out the peaks and valleys, you wanna reduce the risk, that's fine. But if you really wanna, like, jam it on, you are taking a risk that the market falls out of bed at the wrong time. And that's just something that we need people to hear. So I think, Therese, that you have some thinking to do.

[Jill Schlesinger]

Let us know what you decide.

[Mark]

I'm really gonna be interested to hear. But either way, you're on the right track. Do you have your estate documents done?

[Therese]

I do.

[Mark]

Good. Excellent. What a good egg you are. So we will send you off to struggle with the cold and maybe next year for your Detroit Lions. If you've got a financial question, get in touch with us. Go to jillonmoney.com, click the contact us button and do let us know if you want to join us on the air live. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Don't forget to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Jill Schlesinger]

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