CALL US AT (804) 285-7333

U
Godsey and Gibb Wealth Management (logo)
Client Portal
Meet With An Advisor

Jun 15, 2021 | Investment Management, Q&A

What is my risk tolerance, and why is it important?

Tags: Investment Strategy, Risk Tolerance
Risk vs reward comparison

WHAT IS MY RISK TOLERANCE?

Risk tolerance refers to the amount of loss an investor is prepared to take on when making an investment decision. Everyone has a different level of risk tolerance based on their personal financial situation and stage of life. This tolerance plays a critical role in determining the allocation of your portfolio.

WHAT TO CONSIDER WHEN DETERMING MY RISK TOLERANCE?

YOUR GOALS:

Your goals dictate the amount of funds you will require in the future. By understanding this number compared to your current investment, an investment strategy with a necessary level of risk can be put in place to deliver the appropriate returns.

YOUR TIMELINE:

Markets are unpredictable, so individuals with short-term financial goals may not be able to ride out the ups and downs. Less risky investment options may be better for their goals. For example, someone planning to buy a house or nearing retirement would likely require a more risk-averse portfolio compared to a 30-year-old saving to retire at 65 years old.

YOUR CAPACITY FOR LOSS:

An individual going into retirement with a $5 million portfolio likely has more capacity for risk than someone with $500,000. This is assuming both individuals have moderate living expenses.

YOUR PERSONAL COMFORT LEVEL:

Everyone is different, and some people are naturally more comfortable taking risks than others. Those who are most stressed by market volatility often require more conservative portfolios.

CONCLUSION:

Godsey & Gibb assesses the risk tolerance of all clients when they begin to work with our firm. Following the assessment, we use our conversations with you (and your financial plan, if you have one) to update your tolerance level and investment strategy. Life-changing events can impact one or more of the factors that affect your risk tolerance, which is why it is critical to keep an open line of communication with your advisor. These events may include the retirement of one or both spouses, an addition to the family, medical events, or a death in the family.

Questions? Please contact us or reach out to your advisor.

Author: Kyle Fischer, CPA, CFP® | Wealth Management Advisor
Written: June 15, 2021

How Retirement Accounts and Taxes Affect How Much You Need

A retirement nest egg of $1,000,000 in a traditional 401 k is not the same as $1,000,000 in a Roth account or taxable brokerage account. Taxes can significantly change how much retirement income you actually get to spend.

Account types and taxation:

  • Pre-tax accounts (traditional 401(k), traditional IRA): Withdrawals from 401(k)s and traditional IRAs are typically taxable as ordinary income
  • Tax-free accounts (Roth IRA, Roth 401(k)): Qualified withdrawals are generally tax-free
  • Taxable accounts (joint brokerage, trusts): Subject to capital gains taxes

Retirement income may still be taxable, including traditional 401(k)/IRA withdrawals and Social Security taxation. Required minimum distributions from an individual retirement account or employer sponsored retirement plan start at age 73 under current law, potentially forcing higher taxable income and affecting Medicare premiums.

State income taxes differ significantly. Virginia and South Carolina tax retirement income (though SC offers some exemptions), while Florida and Arizona have no state income tax. Relocating in retirement may affect your gross income needs after tax.

Tax-aware withdrawal strategies—such as blending withdrawals from traditional and Roth accounts, realizing capital gains strategically, or performing Roth conversions before RMD age—may help optimize your financial situation. However, tax laws and brackets can change. Working with a team that integrates investment management with ongoing tax strategy and preparation, like Godsey & Gibb’s in-house CPA team, can help keep your retirement plan and tax advice current. Consult your tax advisor for guidance on your particular investment and account structure.

Pitfalls of Popular On/Off-Track Benchmarks

Widely-referenced age-based retirement savings goals suggest you have: 1x your annual salary saved by age 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67 to maintain your current lifestyle in retirement if you plan to retire at this traditional retirement age. A common guideline is to save between 10% and 15% of your annual pretax income for retirement, assuming a 40- to 45-year working career.

This framework was developed by Fidelity Investments internal research around 2014 and used in part as a marketing tool. Certain assumptions—such as social security accounting for 35% of one’s retirement income—are inapplicable to many affluent retirees. The framework was validated for incomes between $50,000 and $300,000, another indication it doesn’t apply to everyone.

Common pitfalls that distort how much money someone thinks they need:

  • Underestimating healthcare costs

  • Ignoring inflation’s impact on living expenses over 25+ years

  • Assuming very high future results from investment strategies

  • Not planning for long-term care or surviving spouse needs

A retirement calculator can help gauge whether current retirement savings and asset allocation align roughly with targets, but complex situations—business owners, large concentrated stock positions, potential inheritance—usually benefit from professional modeling. Investing involves risk, and actual investment results will vary.

At Godsey & Gibb, we frequently review progress towards retirement with clients and adjust their savings plan as markets, tax law, and personal financial goals evolve.

A retired couple strolls hand in hand through a serene park, surrounded by lush greenery and blooming flowers, enjoying their time together in nature. Their relaxed demeanor reflects the joys of retirement, a time when they may also be considering aspects of their healthcare, such as Medicare premiums and the impact of modified adjusted gross income on their medical insurance costs.

Why a Personalized Retirement Plan and Ongoing Professional Guidance Matter

How much retirement income you need is not a one-time calculation. It’s a moving target influenced by markets, inflation, health, tax legislation, family needs, and personal goals. To start saving effectively for retirement, you may benefit from a plan that adapts.

A personalized retirement plan typically includes:

  • A detailed retirement budget and spending map

  • Investment strategy aligned with investment objectives

  • Tax strategy coordinated with distributions

  • Estate and legacy planning (wills, trusts)

  • Risk management (insurance, long-term care planning, survivor income planning)

Developing the plan is only half the work. Executing the plan—making investment changes, tax decisions, and distribution adjustments year by year—is equally complex. Many retirees find that working with financial advisors who can delay retirement decisions strategically, coordinate employer match optimization while still working, and manage the transition is valuable.

Godsey & Gibb’s model brings financial planners, portfolio managers, and CPAs under one roof so that tax strategy, investment management, retirement income planning, and estate considerations can be coordinated. We focus on helping clients understand how much retirement savings they may need given their current age and goals, leveraging expertise in all the necessary areas of complexity.

If you’re in the Richmond, Greenville, Jacksonville, or Phoenix areas, consider a conversation with a fiduciary financial planner to refine your own directional retirement number. With thoughtful planning, periodic review, and the right advisory team, we strive to help clients approach their retirement years with greater clarity and confidence about how much income their savings may support.

MEET WITH AN ADVISOR

Information contained herein is for general educational purposes only and is not intended to be substituted for personalized investment, financial, tax, or legal advice as individual situations can vary. The use of charts, graphs, formulas, and other illustrations are not intended to be used independently to guide investment decisions or to determine which securities to buy or sell, or when to buy or sell them. Information was obtained from sources considered reliable, but no representations or warranties are made to its accuracy, timeliness, suitability, or completeness. Statements expressed are opinions of certain Godsey & Gibb Wealth Management personnel and are subject to change without notice. Forward-looking statements expressed herein are subject to change due to shifts in the market and economic conditions. Full disclosure: https://www.godseyandgibb.com/disclosure/

Disclosure: Our website contains links to third-party websites which are provided as a convenience only. These sites contain information by organizations independent of Godsey & Gibb Wealth Management. We do not endorse the content, advertisements, activities, nor the products of these linked websites. Furthermore, we do not receive compensation for linking to any third-party websites, or control these websites, and do not assume responsibility for the accuracy, completeness, or timeliness of the information located on these linked websites or provided through the third-parties. Accessing any linked third-party websites, tools or programs is at your own risk and subject to all terms, conditions, and privacy policies of those third parties. View full disclosure.