The Couple With Divergent Risk Tolerance
A married couple, both 54, holds $1.8 million in a joint account and $400,000 in a 401(k). One spouse, a surgeon, wants to hold 90% equities and is comfortable with a 40% drawdown. The other, a teacher, wants no more than 40% equities and lost sleep in 2022. They argue in meetings and have twice delayed rebalancing. Their goal is retirement at 62 with $110,000 per year after tax. The account drifted to 78% equities during the delay.
1. How should the advisor resolve the impasse and set an appropriate allocation?
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The advisor should reframe the conflict as a shared risk-capacity question rather than a contest of preferences. The household has one portfolio and one spending goal, so the allocation must satisfy the more risk-averse spouse's ability to stay invested, because a panic sale harms both. The advisor should quantify: at 78% equities, a 40% market decline would cut the $2.2M to roughly $1.5M, a loss of about $700,000, and show what that does to the retirement projection. A workable approach is a risk-budgeted middle allocation, perhaps 55%-60% equities, with a written policy statement, agreed rebalancing bands, and a defined process for future disagreements. The surgeon's higher tolerance can be honored through a separate, clearly labeled satellite account if the couple agrees, but the core retirement assets should reflect the lower tolerance.
2. What behavioral and governance steps should accompany the new allocation?
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The advisor should document the decision in an investment policy statement signed by both spouses, including target allocation, rebalancing triggers, and the rule for resolving deadlock. Behavioral steps: pre-commit to a drawdown plan so neither spouse makes ad hoc decisions in a crisis; schedule a review after any 10% market move; and separate the emotional conversation from the analytical one. The advisor should also address the two delayed rebalances as a governance failure, not a market call, and set a calendar rule. Finally, the advisor should confirm the retirement projection at the agreed allocation, since 55%-60% equities may still support $110,000 if contributions continue, but the couple should see the trade-off between lower volatility and a possible later retirement date. Consent and clarity matter more than the precise number.