Rethinking Risk:

The Advantages of Goals-Based Retirement Planning

For decades, investment advisors have relied on risk tolerance—a person’s
willingness to endure market volatility in pursuit of higher returns—as
the foundation of portfolio construction in retirement planning. Under
this risk-based planning model, advisors use a person’s time horizon and
self-reported risk tolerance to shape their investment mix and expected
outcomes. For example, a “moderately aggressive” investor may be guided
toward a 70% stock/30% bond mix with an assumed long-term return of
6–7% annually.

More recently, however, many financial planning advisors have shifted
toward goals-based planning, a more holistic approach that starts with
what a person wants to achieve in retirement. Rather than anchoring
on abstract risk categories, goals-based planning focuses on real world
priorities—housing, healthcare, lifestyle, travel, or legacy—and the cost of
sustaining them over a lifetime. Advisors then design a portfolio to support
these specific outcomes. Risk tolerance is treated as an important input, but it’s only one piece of the bigger picture.

Why it Matters

Not all retirement plan investors are able to effectively identify and assign an appropriate risk level for themselves. They’re simply looking for confidence that, when retirement arrives, they’ll be able to sustain the lifestyle they want for as long as they need.

When advisors frame retirement planning in these human terms, we believe plan participants are more likely to contribute consistently, stay invested longer, and avoid impulsive decisions. These positive investing behaviors—creating a plan and sticking to it—increase the likelihood of meeting one’s retirement goals.