By Wealth Wise Advisory Desk

For many retirees, the conventional financial playbook offers a singular, steadfast piece of advice: dramatically reduce portfolio risk. The foundational logic behind this traditional wisdom is straightforward. When individuals transition away from their primary careers and begin tapping their investment portfolios to fund day-to-day living expenses, financial planners generally advise against maintaining heavy exposure to volatile equities. The last thing a newly minted retiree wants is to be forced into realizing steep losses on stocks or other high-risk assets simply to pay monthly utility bills, cover healthcare costs, or put food on the table.

However, standard retirement rules do not always apply across the board, particularly when high-net-worth individuals enter their golden years with a substantial cushion of guaranteed income and a multi-million-dollar net worth.

This unique financial dynamic was recently brought to light by a reader identifying himself as "Legacy Builder," a 72-year-old retiree who reached out to the Wealth Wise advice column. Alongside his wife, the reader boasts a robust net worth of approximately $10 million. Their asset distribution includes roughly $3 million tied up in real estate, which features a rental house generating $1,500 a month in net income against a remaining $180,000 mortgage. Notably, the couple owns both their primary residence and a vacation home entirely outright, free of any mortgage encumbrances.

Their investment portfolio leans heavily into the aggressive category. Within their holdings, they maintain $3.8 million in traditional Individual Retirement Accounts (IRAs), another $850,000 in Roth accounts, and $900,000 housed inside a Generation-Skipping Trust for which the husband serves as trustee. Beyond these accounts, they pull in a reliable $9,600 every single month from a combination of Social Security benefits, private pensions, and structured annuity payments. Rounding out their balance sheet is $800,000 held in non-tax-deferred accounts, which includes $150,000 sitting securely in cash accounts.

Driven by a personal philosophy that they have accumulated more than enough wealth to ensure they will never have to worry about running out of money during their own lifetimes, the reader explained that his current strategy is focused entirely on building wealth for his heirs. Consequently, the couple remains heavily invested in mutual funds and exchange-traded funds (ETFs), some of which carry a distinctly aggressive risk profile.

Faced with this scenario, the core question presented to financial experts is whether this aggressive approach is appropriate for a septuagenarian couple, or if they are unwittingly exposing themselves to unnecessary financial peril.

"Risk" Is All Relative

A stock-heavy, aggressive portfolio can indeed spell disaster for retirees who rely solely on those investments to cover their daily cost of living. But as wealth management professionals point out, that is far from the reality facing Legacy Builder and his spouse.

Phillip E. Battin, president and CEO of Ambassador Wealth Management, notes that he is not particularly alarmed by the couple’s aggressive asset allocation strategy.

"With about $10 million in net worth and $9,600 a month in combined Social Security, pension, and annuity income, they indicate their income needs are met," Battin observes.

While acknowledging that potential hurdles could always arise—such as current tenants failing to renew a lease or future difficulties in keeping the rental property occupied—Battin emphasizes that the couple is not critically dependent on that rental income stream to survive. Furthermore, should the rental property ever become a persistent headache, they possess the flexibility to simply unload the real estate asset and redeploy the capital into alternative income-generating vehicles.

As a result, Battin does not view the couple’s heavy equity exposure as inherently dangerous. Nevertheless, he offers an important word of caution, pointing out that maintaining an "aggressive" posture does not automatically require taking on an over-concentrated position in speculative sectors like high-flying technology stocks or unproven market niches.

Robert Jeter, a Certified Financial Planner and financial planner at Back Bay Financial Planning & Investments, shares a similar perspective on how high-net-worth investors approach portfolio construction.

"I would be careful conflating ‘aggressive’ with asset allocation versus speculating," Jeter explains. He notes that individuals blessed with higher net worths frequently develop an overconfidence that leads them to deviate from straightforward, proven investment strategies, ultimately costing themselves unnecessary money in fees and tax inefficiencies. According to Jeter, the optimal path is frequently to remain aggressive from a pure asset allocation standpoint while simultaneously simplifying the underlying investment strategy to minimize tracking error and reduce tax drag.

Focus on Tax Efficiency

When a married couple sits atop a net worth of roughly $10 million with a primary objective centered on generational wealth transfer, tax optimization shifts from a secondary consideration to an absolute necessity. Jeter stresses that achieving this requires a disciplined, strategic approach to asset location.

"Your most aggressive investments should be in your taxable and Roth accounts, while any conservative investments should be in your deferred accounts," Jeter advises.

Battin echoes the importance of strategic positioning regarding taxable assets. He suggests that utilizing taxable accounts for aggressive growth investments can provide substantial long-term benefits, particularly by taking advantage of the step-up in cost basis that occurs upon the passing of the account holders.

When contemplating the ultimate fate of a large inheritance, Brandon M. Cox, a Certified Financial Planner and founder of Coastline Complete Wealth, highlights a powerful tool that this couple should strongly consider: the Roth conversion.

"The tax brackets today may be as friendly as they will ever be for you or your heirs," Cox explains. "I would absolutely be looking at whether it makes sense to start converting some of that IRA money to Roth."

Cox outlines the significant tax traps awaiting traditional IRAs left untouched. If either the reader or his wife outlives the other by a significant margin, the surviving spouse will eventually find their retirement accounts taxed under much less favorable single tax filer brackets. Furthermore, whatever assets ultimately pass down to their children will be subject to strict federal rules requiring inherited traditional IRAs to be completely emptied within a compressed 10-year window.

For the couple’s children, taking mandatory distributions in their 50s or 60s—frequently the peak earning years of their own professional lives—could mean stacking substantial IRA withdrawals directly on top of their existing salaries, pushing them into painful tax brackets. By proactively executing structured Roth conversions now, Cox points out that the family can often manage to pay significantly lower taxes today than what the surviving spouse or the children would otherwise be forced to fork over down the road.

Have a Spending Plan and Make Sure You Can Handle Market Dips

Given the impressive scale of Legacy Builder’s net worth, it is easy to understand why he feels confident declaring that he and his wife have accumulated enough money to live without financial anxiety. However, Chris Berkel, president and founder of AXIS Financial and an investment adviser, cautions that determining a truly appropriate investment strategy requires looking beneath the surface to evaluate the couple’s precise spending habits and emotional resilience.

"Risk tolerance, practically speaking, is made up of two components—ability and willingness to accept risk," Berkel explains. "The most common way to assess ability is through a robust financial plan, and so to help this gentleman and his wife, we really need to understand his spending goals."

Berkel points out that a lifestyle requiring $150,000 in annual spending creates an entirely different financial equation than one requiring $400,000 a year. If the couple’s guaranteed monthly income streams from pensions, annuities, and Social Security fall short of covering their near-term cost of living without touching their investment portfolio, their practical ability to comfortably weather a prolonged stock market downturn narrows considerably. Therefore, if the couple relies in any capacity on their aggressive equity holdings to fund near-term living requirements, they would be well-served to re-evaluate that portion of their comprehensive plan.

Beyond the mathematical ability to absorb financial shocks, Berkel emphasizes that an investor’s willingness to accept risk is deeply psychological and emotionally driven.

"Some people are the go-get-’em type and will gladly accept a 50% loss to maximize their longer-term gains," Berkel notes. "Other people like to be steady, and even a 10% drawdown can have them waking up in the middle of the night."

Should the reader suspect that he or his wife might struggle emotionally when the inevitable market corrections and downturns strike, scaling back at least a portion of the portfolio’s overall risk profile may be warranted. This remains true even if the couple has no intention of spending the capital themselves and is holding the funds strictly for the benefit of their future heirs.