“It’s only when the tide goes out that you learn who’s been swimming naked.” Warren Buffet

Many investors, especially those who are approaching retirement or who are already retired, are like that bather caught without a suit at low tide.

Our world has changed dramatically over the last decade, but the way most prepare financially for retirement, protect their personal wealth, and invest their retirement nest egg has not kept pace. Today many investors approaching retirement either have their hard-earned savings at too much risk or, for safety, use investment vehicles that do not keep pace with the rate of inflation.

Failing to identify key risks can make your retirement years more hazardous than they need to be. Family risks can come from the unthinkable loss of the primary wage earner. Risks to your personal wealth can arise from a global recession, bear markets, ongoing market volatility, or simply making bad decisions. Inflation, uncertain tax reform, or an over-allocation of your portfolio to one sector, one asset class, or one part of the world are additional hazards.

Many investors experienced a net loss in their portfolio for the most recent decade, especially taking into account taxes and inflation. Most cannot afford more of the same without putting their lifestyle and long-term retirement goals at risk. It would be prudent for investors to have a discovery process. You can begin by leveraging the power of some questions. For example:

1. What concerns you most about your wealth and future?
2. When would you like to retire?
3. How long do you need to plan for your retirement to be?
4. Do you think it would be prudent for the income portion of your portfolio to be at risk?
5. How would you like to work with a financial advisor?

This is just the beginning of many questions you should ask yourself. Preserving and managing wealth is both personal and comprehensive.

For those in retirement or approaching retirement, it is important to structure your nest egg to create the long-term growth you will need for the future and to fight the eroding power of inflation. It is of equal importance to set up income streams with the goal of paying, at the very least, your basic expenses.

It is important that you transition into retirement and balance your growth and income needs. Understanding the difference between the two will give you peace of mind for your later years.

The essence of planning your retirement is the management of risk in your portfolio, not the management of returns. Well-managed retirements begin with this precept. It is of paramount importance that the income portion of your portfolio not be at risk. That means no market OR inflation risk.

Many investors or their advisors will simply ride the ups and downs of the markets or rely on a strategy of “buy and hope” the markets go up. If you were an institution or you had 50 years until retirement, you might be okay with this strategy. But as most investors have discovered over the last 10 years, you need to protect yourself from losses. Markets, like trees, don’t grow straight to the sky.

While markets went up an estimated 455% from 1990 to 2000, the average investor lost an estimated 47.4% in the 31 months that followed. It took 7 years and 2 months for the S & P 500 to get back to even (Source: Standard and Poor’s). And we saw a similar pattern in the 2007-2009 timeframe, with markets coming down 56.8 % off their highs (Source: Marketwatch). Most retirees cannot afford that kind of risk to their portfolio, in particular to the income portion of their portfolio.

When planning your retirement, there is a lot to consider—more than can be addressed in this one article. Unless you plan your retirement and understand that planning in retirement is different than the planning you did during your working years, retirement could potentially be less than you hoped for. You could be one of those bathers caught without your suit on at low tide. For some of us, that’s not a pretty thought.

David Gandossy is an investment advisor in Matthews, North Carolina. Serving clients since 1983, David specializes in creating safe retirement plans that ensure you’ll have your money when you need it. Contact David at (704) 841-2000.