In this post I’m going to share an example of one of the risks that we face in retirement when doing retirement planning.
Recently, I talked to a couple who is moving from the accumulation or saving stage to the distribution stage. They’re getting ready to retire soon, hopefully this year. And they just wanted to make sure that they had a solid plan. They’re thinking through all the different possibilities, outcomes, and scenarios that could play out for them in their life. They’re in their sixties, they have a little bit over a million saved right now, and they can live off of about $6,000 per month. This amount is reasonable for base-level expenses.
Things look pretty good with their plan, but there’s one thing that sticks out that could be a risk. There are usually a few major risks for any plan. In this particular scenario, the problem is a single-stock risk or single-investment risk. Of the million dollars they have saved, about 40% is in one stock. It’s a high-flying stock that gets a lot of news coverage and it’s really worked out well for them. Now it could continue to go up, but that’s quite a high percentage to have in one single stock. Because it has a high profile, it could be adversely impacted by a piece of news or competition or some sort of regulation.
In the video above, I’ll show you an example of what sort of impact this could have on a plan. You’ll see that if this high-profile stock, that has about $440,000 in it, takes a 50% correction (when the average is between 4 and 6%) it can have a huge impact on the rest of their retirement plan. Even if there’s a slow and steady recovery, the difference is noticeable.
So that’s just one thing to be aware of when it comes to investing and your income plan. Even your tax plan could be impacted, because of the capital gains that are associated with this single stock risk. It’s more about predictability and sustainability than it is about growth. If you have a successful plan where you don’t need to take that level of risk, then why not make it a little bit more predictable with, hopefully, a few less fluctuations.
If you have questions about this scenario, or about the right type of mix or allocation, click here to set up a time to talk with me.