For most of your working life, investment risk is measured against growth. You look at the account balance, the market cycle, the fund lineup, and the years still ahead of you. A bad quarter may be frustrating, but your paycheck is still covering the bills, new contributions are still going in, and time is still on your side.
As retirement gets closer, the paycheck suddenly has an end date, Social Security becomes a decision rather than a distant estimate, and income may need to come from a pension, a business sale, rental property, or an investment account rather than arriving automatically every two weeks. At that point, the question goes from, "Can this portfolio grow?" to, "What happens if I need income from it during a bad market?"
That is why a simple age-based rule is too thin for the risk decision before retirement. Two people can both be 62, have similar account balances, and need completely different investment approaches. One may have a pension, low debt, strong cash reserves, and flexible spending. Another may need the portfolio to cover a large share of monthly income right away. Their risk tolerance may be similar, but their risk capacity differs significantly.
Current retirement research backs up the need for a more careful review. In the 2026 Retirement Confidence Survey, workers said they expected to retire at a median age of 65, while retirees reported a median actual retirement age of 62. The same survey found that 46% of retirees left the workforce earlier than planned.1 That means the risk review should happen before retirement feels urgent, because the transition can arrive sooner than expected.
Risk tolerance is only one part of the answer
Most people hear the word "risk" and think first about how they feel when the market drops. If a portfolio decline causes you to abandon the plan, the portfolio was probably carrying more risk than you could live with in practice.
Still, risk tolerance is only one part of the decision. A useful pre-retirement review separates three ideas.
- Risk tolerance is how much market movement you can emotionally handle.
- Risk capacity is how much loss your retirement plan can absorb without forcing a major change to income, spending, or timing.
- Risk required is how much growth the plan may need to keep up with inflation, withdrawals, taxes, and a long retirement.
A person who hates volatility but has a guaranteed income, such as a pension which will cover most expenses in retirement, may have more risk capacity than they realize or even need. A person who feels comfortable taking market risk may still need to reduce exposure if the portfolio must fund a large withdrawal in the first year of retirement.
This is also where many investors feel stuck. The Federal Reserve's 2025 Survey of Household Economics and Decisionmaking found that only 35% of non-retirees thought their retirement savings plan was on track. It also found that 53% of adults were either not comfortable or only slightly comfortable choosing and managing investments.2 That combination is understandable. Retirement investing asks people to make decisions that are financial, emotional, and mathematical at the same time.
Start with the income you need in the first five years
Before changing the investment mix, build a clear picture of the first five retirement years. Those early years create the most immediate pressure because withdrawals may begin before the portfolio has adjusted to its new job.
Start with the income sources that are not directly tied to the stock market. That may include Social Security, a pension, annuity income, rental income, a business transition payment, or part-time work. Then compare that reliable income with required monthly spending. Housing, utilities, insurance, food, healthcare, taxes, and debt payments belong in one category. Travel, gifts, hobbies, home projects, and other flexible spending belong in another.
The gap between reliable income and required spending tells you how much pressure lands on the portfolio. If the portfolio only needs to cover flexible spending, you may have room to ride through more market movement. If the portfolio must pay the mortgage, health insurance, groceries, and taxes, the first few years of withdrawals deserve a much tighter plan.
This is where a simple bucket framework can help. Near-term spending money should generally be easier to access and less exposed to market swings, while longer-term money can often stay invested for growth. The goal is to assign each retirement dollar a job without turning the plan into a pile of disconnected accounts.
Sequence-of-returns risk is the danger zone
A market decline before retirement is uncomfortable. A market decline right after retirement can be more damaging if withdrawals begin at the same time.
This is called sequence-of-returns risk. The phrase sounds technical, but the concept is simple: the order of returns can change retirement outcomes. Two retirees can earn the same average return over time, yet the retiree who experiences large losses early while taking withdrawals may have less capital left to recover when markets rebound.
The planning issue is a down market combined with withdrawals. If you sell growth assets after they have fallen in order to fund living expenses, those dollars no longer participate in the recovery. That can put pressure on the rest of the portfolio.
A pre-retirement risk review should therefore ask which assets would fund spending during a market decline. Some households build a cash reserve. Some hold a short-term bond or conservative allocation for planned withdrawals. Some keep enough flexibility in spending to reduce withdrawals temporarily. Others coordinate portfolio withdrawals with Social Security timing, pension income, taxable accounts, or Roth assets.
The point is to decide in advance. During a volatile market, investors often feel pressure to do something quickly, but market volatility should not force emotional moves. Before retirement, that same discipline becomes even more valuable because every withdrawal has a second-order effect on the income plan.
Being too conservative can create a different risk
Reducing market risk before retirement can be sensible. Eliminating growth exposure altogether can create a different problem.
Cash feels safe because the account value stays relatively stable. But retirement spending is measured in purchasing power, not account statements. Bureau of Labor Statistics CPI data shows that the all-items Consumer Price Index rose about 3.8% from April 2025 to April 2026, and about 29.9% from April 2020 to April 2026.3 Even if inflation cools from prior peaks, several years of higher prices can permanently change the cost of groceries, insurance, utilities, home repairs, and healthcare.
Longevity adds another layer. CDC life tables for 2023 show that a person age 65 could expect to live an average of 19.5 more years, and a person age 85 could expect another 6.7 years.4 A retirement beginning in the early or mid-60s may need to support spending for 20 years or longer. Some households will need to plan beyond the averages, especially for a surviving spouse or a family with a history of long life.
That is why "less risk" should be defined carefully. Less stock exposure may reduce short-term volatility, but too little growth can expose the plan to inflation risk. Too much cash can make the first few years feel calm while making later years harder to fund. The goal is to avoid taking the wrong risk in the wrong account at the wrong time.
Check for concentration before checking percentages
Many investors jump straight to allocation percentages. Should the portfolio be 60/40? 70/30? Should stocks be reduced by 10 percentage points before retirement?
Those questions can be useful, but they may skip a more basic issue: concentration.
A portfolio can look diversified at a glance and still carry hidden concentration. Too much employer stock can tie your job history and retirement wealth to the same company. Too much exposure to one sector can make the plan vulnerable to a narrow market cycle. Too much real estate can connect your wealth, local economy, and cash flow to the same set of risks. Too much tax-deferred money can reduce flexibility when withdrawals, Social Security taxation, required minimum distributions, and Medicare premiums begin interacting.
Workplace plans have improved in some ways. Vanguard's 2025 How America Saves report found that only 2% of participants had more than 20% allocated to company stock in 2024, down from 18% in 2005.5 That is encouraging, but concentration can still exist across outside accounts, brokerage holdings, inherited positions, real estate, business interests, or old retirement plans.
Before retirement, diversification should be reviewed across the whole household balance sheet. The sharper question is this: if one investment, one company, one sector, one property, or one tax bucket disappoints, how much of the retirement income plan is affected?
A pre-retirement risk review
A good risk review should move from abstract labels to specific planning questions.
It should answer seven questions:
- How much spending must come from investments in the first five retirement years?
- Which income sources are reliable regardless of market performance?
- How much cash or short-term reserve is available for planned withdrawals?
- How long might the money need to last for one spouse or both spouses?
- Where is the portfolio concentrated?
- Which accounts should be tapped first, and how could taxes affect that order?
- What level of market decline would tempt you to abandon the plan?
Those questions lead to better decisions than a generic age-based allocation. They also help reveal whether the portfolio is taking risk on purpose or simply carrying old defaults from a prior stage of life.
What G&R can help review
The right amount of risk before retirement is not the most aggressive portfolio you can tolerate or the most conservative portfolio that helps you sleep. It is the level of risk your retirement income plan can support.
That review may include investment allocation, cash reserves, Social Security timing, pension income, taxable and tax-deferred account coordination, Roth assets, insurance needs, healthcare costs, and the order of withdrawals. It may also include a conversation about behavior: what you will do if markets fall right when retirement begins.
Before the paycheck stops, take time to understand what your portfolio is being asked to do. If your current allocation was built for accumulation, it may need to be adjusted for income. If it has become too conservative, it may need a clearer growth strategy. If it looks diversified but carries hidden concentration, that risk should be addressed before withdrawals begin.
G&R Financial Solutions can help you review your retirement income plan, evaluate how much risk your portfolio is taking, and consider whether that risk still fits the retirement you are preparing for.
Sources
1. Employee Benefit Research Institute and Greenwald Research, 2026 Retirement Confidence Survey, Fact Sheet #2: Expectations About Retirement. https://www.ebri.org/docs/default-source/rcs/2026-rcs/rcs_26-fs-2.pdf
2. Board of Governors of the Federal Reserve System, Economic Well-Being of U.S. Households in 2025, Savings and Investments. https://www.federalreserve.gov/publications/2026-economic-well-being-of-us-households-in-2025-savings-investments.htm
3. Bureau of Labor Statistics, Consumer Price Index - April 2026 and Consumer Price Index - April 2020, archived releases, CPI-U all items index. https://www.bls.gov/news.release/archives/cpi_05122026.pdf and https://www.bls.gov/news.release/archives/cpi_05122020.pdf
4. CDC/NCHS, United States Life Tables, 2023. https://www.cdc.gov/nchs/data/nvsr/nvsr74-06.pdf
5. Vanguard, How America Saves 2025. https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2025/has/2025_How_America_Saves.pdf