Retirement planning does not end when a person stops working. The money saved over decades may need to support 20, 30, or even more years of living expenses. That makes investment choices especially important.
Mellody Hobson, co-CEO and president of Ariel Investments, says one mistake stands out among retirees and people approaching retirement: becoming too conservative with investments too soon.
The Risk of Playing It Too Safe
Many people reduce their stock exposure as retirement approaches because they want to avoid market losses. However, Hobson believes this approach can create another problem. If a portfolio fails to grow faster than inflation, purchasing power can gradually decline.
"People think they are winning by not losing when over time it's not outpacing inflation," Hobson told Kiplinger.com in an exclusive interview.
Pexels | Maintaining stock allocation into retirement ensures your portfolio grows enough to beat inflation.
She points out that retirees still need their savings to grow because retirement can last for decades. Equities can provide the growth needed to help a portfolio keep pace with inflation. Pre-retirees can also make this mistake when they see retirement getting closer and move away from stocks too quickly.
A Balanced Portfolio Matters
Hobson does not suggest putting retirement savings heavily into stocks without considering risk. Instead, she supports a diversified portfolio that combines equities and fixed income.
The goal is to create enough growth potential while maintaining assets that can help meet near-term spending needs. This matters because Americans can spend many years in retirement. At last check, life expectancy stood at 81.4 years for women and 76.5 years for men in the United States, although many people live considerably longer.
For someone who has already become too conservative, Hobson recommends making changes gradually rather than moving a large amount into stocks at once. Working with a financial adviser can help determine an appropriate allocation. Another option is dollar-cost averaging, which means investing a set amount at regular intervals over six months or a year, regardless of market conditions.
The Bucket Approach
Retirees can also separate their savings into different time horizons. The bucket approach divides money into short-term, medium-term, and long-term needs.
Short-term funds can cover upcoming expenses, while medium-term assets can support spending in the following years. Money assigned to long-term needs can hold more growth-oriented investments, including stocks.
This structure can reduce the pressure to sell long-term investments during a market decline to pay immediate bills.
Two Other Mistakes
Pexels | Large lump-sum withdrawals reduce long-term compounding and can cause a substantial tax spike.
Hobson identifies two additional problems that can weaken retirement security: taking a large 401(k) lump-sum withdrawal and providing excessive financial support to adult children.
A lump-sum withdrawal may reduce the amount of money that continues growing and compounding. It can also create a significant tax bill when the money comes from a traditional 401(k), since withdrawals generally count as ordinary income.
Hobson also warns against spending retirement savings on impulse purchases. "We have this impulse to buy something, to use that money for a boat, vacation, or something, but that money has to be for the long term," she says. "You don't have to buy the boat; you can go on a boat trip."
Supporting adult children can create another financial strain. Hobson describes the issue as an "epidemic in recent years" and urges retirees to establish clear expectations around long-term family support. She says retirees need to "take the training wheels off" so adult children can become financially independent.
Retirement Still Allows Change
A retirement portfolio does not have to remain frozen. People who become too cautious, spend too freely, or provide more family support than they can afford can still adjust their plans.
Hobson's broader message focuses on continued financial discipline. Small changes can improve a portfolio without requiring sudden decisions or major moves.
"Don't give up on the opportunity at the point of retirement," Hobson says. "You are still working toward financial security. There is no real finish line."
Retirement savings need to serve both present expenses and future needs. Holding too much in conservative investments may limit growth, while taking large withdrawals or carrying family expenses can reduce the money available later.
A balanced strategy, thoughtful withdrawals, and regular portfolio reviews can help retirees protect their financial resources while still allowing their savings to grow.
