Changing our Investment Risk in Retirement

Our main challenge with living off savings and retirement accounts is concentration risk.  Although concentration can be a significant positive when values are increasing, it can be major negative when values are declining.  Currently, about 35% of our assets are concentrated in my company stock.  This is down from about a 50% level when I retired in 2007.

Concentration has been a key factor in helping us build wealth.  While the risk is still the same, some of the downside can be offset by wages earned and time to recover, both of which are not available in retirement.   So it is important to reduce concentration risk.

While I could reduce our concentration to zero immediately, there are significant negative tax consequences.    I estimate that we would pay about 80 to 140% more in Federal and State income taxes than if we reduce the concentration to zero over the next five years.

So we will need to make a decision between higher risk and lower taxes or higher income taxes and lower risk.  At this point, I am leaning toward the higher risk and lower taxes solution, but we can revisit the decision on an annual basis.

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This is not financial advice. Please consult a professional advisor.

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