Is It Possible To Invest Too Safely in Your Retirement Plan? 2 Financial Advisors Weigh In

Keeping all your retirement savings in lower-risk vehicles like bonds, CDs, and cash accounts may feel like the “safe” option, but what happens 10 years into retirement when expenses rise and your monthly income doesn’t stretch as far as it used to? The last thing any retiree should have to worry about is outliving their money, yet that is the reality for many. 

To help you allocate your retirement investments wisely, we asked advisors Thomas Kopelman, co-founder and financial planner at AllStreet Wealth, and Colin Overweg, CFP,  founder of Advize Wealth Management, for their answer to the question, “Can you invest too safely in retirement?”

Why Safety Feels So Comforting

By mid-career, workers have lived through several major market downturns. For instance, if you’re in your late 40s, you’ve experienced the dot-com bust, the global financial crisis, and the COVID-19 crash, during which the markets declined by more than 30%. It makes sense that as you get closer to retirement, you may be tempted to pull your money out of the market and put it into “safe” investments that aren’t as vulnerable to market changes. 

However, no matter how comfortable a mattress stuffed with money sounds, just socking away cash might not sustain you through a 20 to 30-year retirement. Playing it too safe can be risky.

The Hidden Risks of Being Too Conservative

Inflation Risk

Inflation is the increase in the price of goods and services that erodes purchasing power over time. Even at the government’s modest 2% inflation goal, a retiree spending $60,000 in today’s dollars would need $89,157, an almost 50% increase, in 20 years to maintain their standard of living. 

Investing too conservatively, like holding primarily cash and bonds, leaves your portfolio trailing behind rising costs as inflation steadily reduces how far your retirement income will stretch. Over decades, cash and bonds often fail to keep pace with inflation. 

“The real risk isn’t short-term market swings, it’s running out of money in your 80s or 90s because your portfolio didn’t keep pace with inflation,” said Overweg.

Longevity Risk

Life expectancy continues to rise, meaning that retirees are at an increased risk of outliving their savings. Planning for a 30-year retirement looks very different from preparing for a 10-year retirement. Underestimating how long retirement will last can lead to underfunded plans. 

Opportunity Cost

Opportunity cost is the price you pay because you picked one alternative over another. Retirees who avoid equities or growth-oriented investments in the name of safety miss out on growth potential and long-term compounding. Yes, stocks are more volatile than assets such as bonds or cash, but they historically outperform “safe” assets significantly in the long term. 

Still, no one is suggesting that investors go big or go home with their entire portfolio. Even current retirees can benefit from a modest portfolio exposure to stocks. 

Kopelman used a “bucket” metaphor to explain how this works for retirees: “You need three buckets: short-term, mid-term, and long-term. Your long-term bucket … you will not touch for a while, so the goal should be to grow those assets. This can lead to more spending, not running out of money, more giving, and more to your beneficiaries.”

Advisor Insights on Striking the Right Balance

Financial advisors often stress that the solution isn’t choosing between growth and safety—it’s finding the right mix for your risk tolerance, timeline, and goals. 

A quick internet search returns at least five widely cited “rules of thumb,” from the 100 Minus Age to the 4% Rule, to help retirees decide the best portfolio asset allocation. Another common way of framing asset mix is by age.

Early, mid-, and late-career investors might allocate their savings like this: 

• 20s: 90% equities, 10% bonds
• 30s: 80% equities, 20% bonds
• 40s: 70% equities, 30% bonds
• 50s: 60% equities, 40% bonds
• 60s: 50% equities, 30% bonds, 10% cash

While retired investors might choose allocations similar to these:

• Early retirement (60s): 40% equities, 50% bonds, 10% cash
• Mid-retirement (70s): 30% equities, 55-60% bonds, 10-15% cash
• Late retirement (80s+): 20% equities, 60-70% bonds, 10-20% cash

Kopelman warned against relying too heavily on standardized formulas to strike a balance between growth and safety: “It is different for everyone.” He added, “I typically advise having a few years of expenses in something fixed to help if there is a downturn, but it all comes down to needs.”

Overweg also said that he recommends allocations based on his client’s needs: “Every plan is unique, but a reasonable framework is to keep one to two years of expected income withdrawals in cash, an additional five years of withdrawals in bonds for stability, and the rest in a globally diversified stock portfolio. This gives your stocks at least an eight-year timeline, which really starts to put the odds of success in your favor.”

While striking the right balance between risk and safety looks different for everyone, both advisors recommend using Monte Carlo simulations based on historical data and future assumptions to stress-test portfolios and give retirees a probability, based on their allocations, that their money lasts as long as they need it to. 

Regardless of what the numbers say, Overweg reminded us, “Numbers don’t tell the whole story—feelings do. Two clients might both have an 85% chance of success, but if one feels they’re just scraping by while the other feels comfortable, their plans will require very different approaches.”

Ultimately, both advisors agreed that when it comes to balancing safety with growth for retirees. 

“A good advisor asks great questions, clarifies and quantifies the client’s goals, and builds a comprehensive portfolio to meet those needs,” said Overweg.

How To Reassess Your Current Strategy

Reassessing your current strategy is the first step in making your money last in retirement. It is easier than you might think. 

Questions To Ask 

First, ask yourself some key questions to determine if your investment allocation is adequate before making any changes, and to direct the changes you need to make. 

• What is my time horizon? 
• What is my withdrawal strategy? 
• Will my portfolio support my planned lifestyle without adjusting my standard of living? 
• Will I rely on Social Security, pensions, or other income sources to supplement my withdrawals?
• Is my allocation based on a risk-tolerance assessment or out of fear of market swings?
• Am I giving up too much growth potential to avoid short-term discomfort?
• Do I have enough liquidity?
• Is too much of my portfolio invested in cash or other readily accessible assets?
• If I’m closer to retirement, will I have enough money to cover one to two years of expenses during market downturns? 

Tools and Frameworks

Risk tolerance questionnaires: These questionnaires can help you to align your investments with your personal comfort level. You can find them online, but consulting an advisor may give you a more complete picture of the options available to achieve your perfect balance. 

Monte Carlo simulations: These models utilize historical data and future predictions under thousands of different market scenarios to statistically predict the portfolio’s success. 

Withdrawal rate guidelines: Utilize withdrawal rules, such as the 4% Rule, to estimate how long your money will last in retirement. It’s essential to note that these simplified rules make several assumptions about rates of return and inflation that may not apply to your situation. Think of these guidelines as a starting point.

Reallocation Tips

If you find yourself overweight in conservative investments, there are some easy ways to align your portfolio with your goals. 

Incrementally increase equity: Instead of dumping your income investments overnight, shift small percentages of your portfolio into equity each year until you reach a balanced allocation.

Use dividend stocks or balanced funds: These funds give investors income with plenty of growth potential. 

Diversify fixed-income assets: Consider Treasury Inflation-Protected Securities (TIPS), fixed annuities, preferred stock, or other instruments for inflation hedging.

The Bottom Line

While playing it safe can feel like the responsible thing to do with your nest egg, doing so creates hidden risks due to inflation, longevity, and opportunity costs. To ensure your portfolio lasts a lifetime, the goal isn’t to abandon safety, but to balance growth and safety that aligns with your financial goals and risk tolerance. 

Striking the right balance, backed by planning tools, risk insight, and guided by your long-term goals, can help you spend confidently without worrying about outliving your hard-earned money.