When you retire, your spending will no doubt slow down at least a little. Even if you have a pension, you’ll still rely at least partially on your retirement savings. It can be easy to assume that retirement and investing aren’t a good match because of this. But that isn’t necessarily the case.

In retirement, investing is all about moderating risk. With life expectancies higher than they were when your parents and grandparents retired, chances are, you’ll be enjoying retirement for 20, 30, or even 40 years. If you balance your investments correctly, you could earn a steady income that takes you through those years.

Matching Your Retirement Investing to Your Risk Tolerance

Everyone has a different risk tolerance when it comes to investing. Investing in retirement is no different. But the truth is, after retirement, it will be harder to take even a slight loss. That’s why it’s important to adjust your risk tolerance to match your current income, not what you were bringing in before retirement.

Tips to Consider for Retirement Investing

When you retire, you’ll likely live on a combination of Social Security income and your retirement savings. If you’ll get a pension, you have that income, as well. But just as when you were working, the right investing strategy now can give you a little extra money later. Here are three strategies to consider.

Account for Increased Longevity

During the pandemic, longevity dropped a little, but this will likely tick upward in the coming years. Currently, average life expectancy is 80.5 for women and 75.1 for men. If you retire in your 60s, this means you’ll have at least a decade--possibly much longer based on your genetics and overall health. It’s important you keep this in mind when you’re allocating your retirement resources.

Guard Against Sequence Risk

If you’ve ever had a portfolio, you know that returns can be unpredictable. But in retirement, that issue is compounded. This leads to something called sequence of returns risk, which is the danger you face that the market will take a downturn in the early years. When coupled with withdrawals from your portfolio, this could force you to sell your investments off partway through retirement.

The Bucket Approach

One popular strategy is known as the “bucket approach. Picture you’re putting your income into buckets. There’s a bucket that holds a few years of income, and this is what you live on for those early years of retirement. A second bucket holds two to 10 years’ worth of income. With this bucket, you’ll typically keep the money in low-risk stocks and bonds that earn slowly. Then there’s the third bucket, which holds money that you’re investing aggressively in assets likely to earn long-term dividends. This approach helps safeguard your funds against inflation and market fluctuations.

Understanding Your Own Risk Tolerance

There’s a difference between risk capacity and risk tolerance. Yes, in retirement, you lack the capacity you once had to take risks. But your tolerance probably won’t change. This differs from one person to another. Assess your own level of tolerance and ask yourself just how comfortable you are with risky investing. You might find that in retirement, you have to rein yourself in when a riskier approach was fine earlier in life.

Final Thoughts

Risk tolerance in retirement can vary, but so will your spending goals and income situation. We recommend sitting down with a certified financial planner to review your unique situation and come up with a personalized investment strategy to fit your needs.