Why Preparing for Retirement Mitigates Risk

By Tom Sedoric and Casey Snyder

Don’t leave the fate of your retirement up to chance. You have the power to take control of your financial future—so why not start now? Through proper preparation, you can greatly improve your chances of a successful retirement, allowing you to enjoy the financial confidence you worked for. 
 

What is Risk Mitigation? 

You’ve probably heard of risk mitigation before, especially if you work in the world of business operations or project management. Essentially, it’s the process of identifying a risk and taking actions to help reduce the potential impacts of that risk. According to the business risk mitigation guide from MITRE, there are several steps in this process, which include: 

• Assume and accept 
• Avoid 
• Control 
• Transfer 
• Watch and monitor 

What’s great about this list is that it mirrors the steps that we as fiduciaries take to help clients mitigate their own risk as they approach and enter their retirement years. While much of the risk assessment we engage in is rooted in psychological factors, the basic framework is the same. Here’s how we help our clients prepare for retirement and reduce the risks posed by the unexpected. 
 

Assume and Accept

The first step to mitigating risk is to simply acknowledge that the unexpected can—and likely will—happen at some point in all of our lives. We have very little power to prevent some events from happening, such as an illness, an injury, or a natural disaster. We must make our peace with this fact in order to begin the risk mitigation process.

Avoid 

After you’ve accepted that, at some point, a major event will likely affect your financial life, you can begin preparing to avoid potential fallout from that risk. You want to ensure that even if the worst occurs, you have created a safety net which will keep you out of a complete financial disaster.

This is the point where you’ll want to work with a fiduciary to create a plan that works for your unique financial situation. We help clients identify and account for unexpected events in their retirement plan. Through stress testing, extrapolation, and careful analysis, we’re able to formulate a plan that accounts for the unforeseen.

Obviously, 100% confidence in a successful retirement is ideal, and may be unrealistic, but it is a goal we strive for.

Control

At this point, you can start implementing key actions to minimize the impact or likelihood of risks. This means making adjustments to your spending plan, engaging in tax-efficient investing (if you’re not already and is often overlooked), and reevaluating priorities in your retirement plan wherever necessary.

Transfer

In businesses, this step requires people to reassign accountability, responsibility, and authority to another stakeholder willing to accept the risk. Basically, this step ensures that someone is responsible for mitigating a specific risk. 

In retirement planning, on the other hand, this responsibility falls on you and your fiduciary. Your fiduciary can set you up for success in retirement, but at the end of the day it’s up to you to follow through on the plan to properly mitigate risk. 

Watch and Monitor 

Risk mitigation is not a “set it and forget it” type of engagement. Once you’ve strategized and put your plan into action, you can’t simply forget about it. It’s important to keep your eye on existing risks and identify new potential risks as they come along. In particular, pay attention to factors that may impact the nature or severity of risks. For example, if you prepared for medical treatments at peak health, but since then you’ve been diagnosed with diabetes, you may want to reexamine your future healthcare costs. As time progresses and your lifestyle changes, certain risks become more or less probable.

The Importance of Preparing for Retirement 

Beyond mitigating risk, proper retirement planning increases your overall chances of success and provides the financial confidence you have worked for. Success, in the context of retirement, means very different things to different people. Part of the planning process involves identifying your unique wants, needs, and goals for retirement. This means that your entire retirement plan is custom to you. 

It’s well within your power to begin preparing for retirement today, whether you’re 20 years old or in your mid-forties. If you’re interested in learning more about successful retirement planning, get our free guide here.

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.

Steward Partners Investment Solutions and Steward Partners Investment Advisors shall assume the role of a fiduciary only when expressly stated in a written agreement, and when all necessary and proper agreements, contracts, or legal documents are duly executed and in place between the parties involved. Our fiduciary duties shall be bound by the terms and conditions specified within the said agreement and shall not extend beyond the scope defined therein.

Securities and investment advisory services offered through Steward Partners Investment Solutions, LLC, registered broker/dealer, member FINRA/SIPC, and SEC registered investment adviser. Investment Advisory Services may also be offered through Steward Partners Investment Advisory, LLC, an SEC registered investment adviser. Steward Partners Investment Solutions, LLC, Steward Partners Investment Advisory, LLC, and Steward Partners Global Advisory, LLC are affiliates and separately operated.

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