A financial planner explains how best to protect investments in retirement

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Certified financial planner Sophia Bera answers:

I am 73 years old and retired. I would like to know: What is the safest way to protect my funds with little to no risk? My RMD this year is $13,000 — is Betterment a safe way to go?

Congrats on being retired! Based on your age and the amount of your Required Minimum Distributions (RMD) I am assuming that your IRA is around $325,000 and that you also have income coming in from Social Security.

Everyone want to protect their money against risk, but part of investing is that there's risk involved. We all love the upside, but it's hard to stomach the downside. When your portfolio is going up 12% a year, no one says: "Whoa, that's too risky!" But if it goes down by the same amount, then it's a tough pill to swallow.

I think it's important to park some of your money in a high-yield money market account so that you can at least help protect yourself from a down market for a few years. Estimate how much you need to take from your portfolio for living expenses over the next 3-5 years and slowly start setting aside additional cash reserves each year for retirement.

For example: If you need to withdraw $20,000 a year for living expenses, I would aim for $60,000-$100,000 in cash reserves in case your portfolio goes down a few years in a row. This way, you would be able to draw down your cash instead of selling your investments. Right now, you can earn 1% on a money market account at Ally Bank, so consider setting aside your cash reserves there.

In terms of wondering if Betterment is the best place to park your portfolio for minimum risk, it all depends on the asset allocation. I am a huge advocate of Betterment for many reasons: low management fees, quick account setup, diverse portfolios of low-cost ETFs, easy website navigation and one of the best user experiences for an investment management company that exists today. However, they default you to a certain asset allocation of stocks and bonds. If you want to minimize your risk, I would lower the amount of stocks in your portfolio and increase the number of bonds.

Robo-advisers can be great at minimizing the costs of investment management. However, I think the best solution is using a robo-adviser in conjunction with a comprehensive financial planner to not only help you reduce risk in your portfolio but also help with tax planning, insurance, and estate planning that is critical in retirement. You can find one in your area by doing a planner search through FPA or NAPFA. (I usually recommend the XY Planning Network for younger clients).

When I first heard your question, the first thing that came to mind is: Someone is going to try to sell you an annuity. I want to caution you against investing in one. Certain financial product salesman might recommend them, usually those working at insurance companies, but there's usually a high commission in it for them and that translates into high costs for you. Beware of the scare tactics used. Interview a few independent CFPs and find someone who you trust that has your best interests in mind.

This post is part of a continuing series that answers all of your questions related to personal finance. Have your own question? Email yourmoney[at]businessinsider[dot]com.

Sophia Bera, CFP® is the Founder of Gen Y Planning and has been quoted in The New York Times, Forbes, Business Insider, AOL, The Wall Street Journal, and Money Magazine. She tweets, travels, and loves helping millennials manage their money more effectively. Curious? Sign up for the free Gen Y Planning Newsletter.

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