Dear Wealth Wise: My 72-year-old wife and I are retired with a net worth of around $10 million. About $3 million is in real estate, including a rental house that provides $1,500 a month in net income and has an $180,000 mortgage. We own a home and a vacation home outright. Our investment portfolio is aggressive. We have $3.8 million in IRAs, another $850,000 in Roths and $900,000 in a Generation-Skipping Trust that I am the trustee of. We get about $9,600 a month in Social Security, pension, and annuity payments. We have $800,000 in non-tax-deferred accounts, including $150,000 in cash accounts. My philosophy is that we have enough money to never have to worry, so I’m investing for my heirs. Therefore, we’re heavily invested in mutual funds and ETFs, some of which are fairly aggressive. Is this OK?

— Legacy Builder

Dear Legacy Builder: Retirees are frequently encouraged to reduce portfolio risk as they age. The conventional wisdom dictates that when you are actively tapping your portfolio for retirement income, you should avoid finding yourself in a position where you are forced to take significant losses on stocks or other volatile assets just to pay your monthly bills or cover basic living expenses.

However, this situation presents a fascinating contrast: a wealthy retired couple who are continuing to invest aggressively, but doing so with a very specific, long-term intention. Are they taking on too much risk given their stage in life? To answer this question, several leading financial and wealth management experts have weighed in on their asset allocation, tax strategy, and overall financial framework.

"Risk" Is All Relative

A stock-heavy, aggressive portfolio can certainly be dangerous for retirees who possess limited income outside of those investments. Yet, that is clearly not the case for this particular couple, which is why Phillip E. Battin, president and CEO of Ambassador Wealth Management, says he is not particularly worried about their current trajectory.

"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 notes.

While Battin acknowledges that there are always external variables—pointing out that "there is a risk that the current renters don’t renew their current lease, or that the couple will have trouble renting the home in the future"—he emphasizes that the couple does not appear to be overly dependent on that rental income stream. Furthermore, if circumstances demanded it, they could easily liquidate the rental home and deploy the resulting proceeds into alternative income-generating vehicles.

Consequently, Battin does not believe the couple’s equity holdings sound overly hazardous. Nevertheless, he offers an important cautionary note, pointing out that investing "aggressively" does not inherently mean taking an overweight, speculative position in volatile technology sectors or highly risky individual equities.

Robert Jeter, a Certified Financial Planner and financial planner at Back Bay Financial Planning & Investments, shares a similar perspective on how high-net-worth individuals approach their market exposure.

"I would be careful conflating ‘aggressive’ with asset allocation versus speculating," Jeter explains. "Higher-net-worth individuals tend to have extra confidence in deviating from simple investment strategies, costing themselves money. The best course can be to remain aggressive from an allocation standpoint, but simplify the investment strategy to reduce tracking error and tax drag."

Focus on Tax Efficiency

When a couple commands a roughly $10 million net worth and maintains a primary focus on passing down a substantial financial legacy to the next generation, tax optimization moves to the forefront of financial planning. Because preservation and transfer are top priorities, Jeter stresses that this couple must carefully orchestrate where specific asset classes are housed.

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

Battin echoes this sentiment regarding accounts outside of traditional retirement vehicles. "With the assets outside the retirement accounts, they may want to consider investing those aggressively to take advantage of the step-up in cost basis upon their passing," he says.

When discussing inheritances and estate longevity, Brandon M. Cox, a Certified Financial Planner and founder of Coastline Complete Wealth, points out that the couple should heavily evaluate the advantages of executing strategic Roth conversions.

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

Cox elaborates on the potential tax traps awaiting traditional IRAs left untouched. If either the reader or his wife outlives the other by a substantial duration, the surviving spouse will eventually find the remaining IRA assets subjected to much less favorable single tax brackets.

Furthermore, whatever assets ultimately pass down to their children will be subject to strict federal regulations. Descendants generally must completely empty inherited traditional IRAs within a mandated 10-year window. This often forces beneficiaries to take large distributions during their 50s or 60s—frequently the peak of their own earning years—effectively stacking substantial IRA income on top of their existing salaries and professional revenues.

By engaging in proactive Roth conversions now, Cox explains, the couple has a unique window of opportunity to pay lower taxes on those funds today than what they, a surviving spouse, or their children would likely face in the future.

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

Given the impressive scale of this couple’s net worth, it is easy to understand why the reader confidently asserts that they have "enough money to never have to worry." However, investment adviser Chris Berkel, president and founder of AXIS Financial, notes that formulating a truly appropriate investment strategy requires a deep dive into both their hard spending metrics and their emotional preparedness.

"Risk tolerance, practically speaking, is made up of two components — ability and willingness to accept risk," Berkel says. "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 explains that the reality of a retirement plan changes dramatically depending on lifestyle costs. If the reader and his wife maintain a modest annual expenditure of $150,000, their financial security profile looks vastly different than if their lifestyle demands $400,000 a year. If guaranteed income sources cannot fully support their near-term expenditures without requiring periodic liquidations from invested assets, their literal ability to absorb a severe, prolonged stock market downturn becomes much more restricted.

Therefore, if the couple relies in any capacity on their aggressive growth assets for near-term cash flow needs, they might benefit from reassessing that portion of their strategy.

Beyond raw financial capacity, Berkel points out that an individual’s willingness to accept risk is fundamentally emotional.

"Some people are the go-get-’em type and will gladly accept a 50% loss to maximize their longer-term gains," he observes. "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 determine that he or his wife would experience severe emotional distress during steep market corrections, scaling back a degree of portfolio risk may be warranted—even if the capital is not needed for immediate spending and is explicitly earmarked for heirs.

Not all questions submitted are published, and some may be condensed or combined with other similar questions and answers editorially. The answers provided by writers and experts in this advice column are for general informational purposes only and do not constitute independent financial, legal, or tax advice.