Effective retirement portfolio planning goes beyond investment objective, risk tolerance, and time horizon. How you plan to live in retirement—whether that means launching a business, traveling for months at a time, or relying on your savings for steady income—should also shape your retirement portfolio strategy.
Most portfolios are built using an investor’s stated objective, risk tolerance, and time horizon. Sophisticated portfolio-optimization calculations use these inputs to help investors build a well-diversified portfolio positioned to pursue their long-term goals.¹
But for retirees, there’s an additional factor that’s often overlooked: lifestyle. The way you choose to live in retirement can directly influence how your retirement investment portfolio should be structured. Below are three common retirement lifestyles and how each one may call for a different portfolio for retirement.
1. Starting a Business in Retirement
Some retirees use retirement funds to start a business—a second career, a passion project, or a small local venture. This path carries significant risk, since a new business is unlikely to generate income right away.
If you’re considering this route, retirement portfolio risk management becomes especially important:
- Reduce overall portfolio risk. You may want to consider reducing the risk level of your investment portfolio to help offset the risk you’re already taking on with the new business.
- Prioritize current income. Since the business likely won’t turn a profit immediately, structuring your portfolio with an income orientation can help provide steady cash flow while the venture gets off the ground.
This is a common consideration for Florida retirees who start seasonal or hospitality-related businesses, where startup income can take longer to materialize.
2. Traveling for Extended Periods
Extended travel—whether it’s months abroad or a snowbird lifestyle common among Florida retirees—can leave you disconnected from daily market news, even with modern communication tools.
For this kind of lifestyle, a retirement portfolio strategy built around individual securities that require ongoing, hands-on attention may not be practical. Instead:
- Consider professional money management for your retirement savings, so your portfolio is monitored even while you’re away.
- Favor strategies that don’t require frequent, active decision-making to stay on track.²
There are several good reasons to use a professional manager for retirement savings—extended, communication-limited travel is simply one more.
3. Rethinking Retirement Income Strategy
Market volatility can undermine even a well-designed retirement income strategy. Selling investments to generate income while your portfolio’s value is falling is one of the most common causes of a failed retirement income plan.
To help address this, some retirees incorporate:
- Products or strategies designed to limit drawdowns during down markets
- Income sources that don’t depend on selling assets at a loss
These approaches may involve some opportunity cost, but they can help protect your retirement income portfolio from being depleted at the worst possible time.
Why Lifestyle Should Shape Your Retirement Investment Strategy
Retirement portfolio planning isn’t one-size-fits-all. Two retirees with identical risk tolerance and time horizon may need very different portfolios if one is starting a business and the other is traveling for six months a year. Reviewing your retirement portfolio strategy in the context of how you actually plan to spend your time can help you avoid mismatches between your investments and your day-to-day life.
Frequently Asked Questions
What factors should shape a retirement portfolio besides risk tolerance?
Beyond investment objective, risk tolerance, and time horizon, your planned retirement lifestyle—such as starting a business, traveling extensively, or needing steady income—should also influence your portfolio for retirement.
How does starting a business in retirement affect portfolio risk?
Since business income typically takes time to materialize, it often makes sense to lower overall retirement portfolio risk and shift toward an income-oriented approach to help cover expenses in the meantime.
Should retirees who travel frequently manage their own investments?
Not necessarily. Retirees who travel for extended periods with limited access to current events may benefit from professional money management, since it reduces the need for constant, hands-on portfolio monitoring.
How can retirees protect their income during market downturns?
Certain products and strategies are designed to help limit the need to draw down savings when portfolio values decline, which can help protect a retirement income strategy from long-term damage—though this may come with some opportunity cost.
Talk to a Florida-Based Retirement Planning Professional
Your retirement portfolio should reflect more than numbers on a risk questionnaire—it should reflect how you actually plan to live. Whether you’re weighing a new business venture, planning extended travel, or want to safeguard your retirement income from market swings, a personalized review of your retirement investment strategy can help.
References
- Diversification and portfolio optimization calculations are approaches to help manage investment risk. They do not eliminate the risk of loss if security prices decline.
- Keep in mind that the return and principal value of security prices will fluctuate as market conditions change, and securities, when sold, may be worth more or less than their original cost. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
