Weekend Reading: Why Risk Tolerance Questionnaires Don't Work for Determining Retirement Strategies

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

Risk tolerance questionnaires can be a great starting point in determining how conservative your retirement investment strategies should be; however, they’re not the main solution.


When it comes to the decumulation stage of retirement, your lifelong savings need protected from several unique risks, three of which include:

📌Longevity: To ensure you don’t outlive your money

📌Lifestyle: Being able to maintain your desired standard of living

📌Liquidity: Maintaining enough reserved money for unexpected occasions, or to fill in gaps during an unexpected market downturn

The issue: During the accumulation (or saving) phase of your financial life, these concerns aren’t necessarily top of mind, and aren’t typically taken into consideration as part of a risk tolerance questionnaire. While these assessments can play a role in asset allocation, they were not developed to handle the broader threats in retirement.

The alternative test: Past podcast guest, Wade Pfau, along with fellow researcher, Alex Murguía, developed a new way for retirees to select the best retirement income strategy for their unique situation: The Retirement Income Style Awareness® (RISA®) Profile. As described in the article, this decumulation approach is based on two retirement income beliefs: Probability-based versus safety first, and optionality versus commitment. Both are inherently dependent on your unique, financial circumstances, concerns and preferences for retirement income.

Keep in mind: Risk assessments can provide helpful information. At the same time, if you’re only receiving a risk tolerance questionnaire and limited-to-no alternatives for your income strategy in retirement, you could be massively missing out and misaligned.