Forbes featured insights from Of Counsel Michelle Capezza in an article about the distinction between risk capacity and risk tolerance in retirement planning. The article notes that while many retirement plan participants intuitively understand the concept of risk capacity, its nuances are not always reflected in 401(k) plans.
Michelle says, “An assessment of risk capacity is more of an objective assessment regarding how much risk a person can take based on their financial situation, considering such things as their income and expenses, assets and liabilities, time horizon, goals, and other obligations. An assessment of risk tolerance is more of a subjective gauge regarding an individual’s willingness to take on risk, and how much risk they would be comfortable taking on.”
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