Risk Tolerance in Your Final Working Years: A Washington Public Employee's Guide

​After decades of serving the people of Washington in state or local government, retirement is finally on the horizon. The question many public employees face at this stage is deceptively complex: What should you do with your investments as retirement approaches?
Should you play it safe? Stay aggressive? Find middle ground? Let's explore what makes sense for Washington public employees.
The Risk Paradox for Government Employees
The conventional wisdom suggests becoming more conservative as retirement approaches. But here's a critical insight that's often overlooked: being too cautious with your investments can be just as problematic as being too aggressive.
Why? Your retirement could last 30 years or more, and your money needs to keep working throughout that time in order to keep pace with inflation
The Washington Public Employee Advantage
As a Washington state or local government employee, you have a significant advantage that many private-sector workers don't: your defined benefit pension through the Department of Retirement Systems (DRS). Whether you're in PERS, TRS, LEOFF, or another plan, this guaranteed income creates more flexibility than you might realize when managing investment risk [1].
This pension foundation changes the entire risk equation for you.
Understanding Your Complete Risk Picture
Think of managing risk like adjusting the temperature in your home. Getting it right requires balancing multiple factors:
1. Risk Tolerance: Your Emotional Comfort Level
This is your psychological ability to handle market volatility—that feeling in your stomach when headlines announce market drops. While important, your comfort level shouldn't be the only factor driving your decisions [2].
2. Risk Capacity: What Your Financial Situation Can Handle
Here's where your pension makes a crucial difference. With guaranteed monthly income that includes cost-of-living adjustments, you likely have greater capacity to weather market fluctuations in your other investments than someone without a pension [1].
3. Risk Requirement: Your Need for Growth
Even with periodic cost-of-living adjustments, inflation can erode your purchasing power over time. Your investments need to help combat this reality throughout a potentially long retirement.
The "War Chest" Strategy for Public Employees
Here's a practical approach that can help balance security and growth: create what I like to call a "War Chest." This strategy is particularly effective for government employees with pensions [3].
Start by setting aside five years of expenses beyond what your pension and Social Security will cover:

• Keep 1-2 years' worth in cash or cash-like investments
• Put 3-4 years' worth in high-quality, short-term bonds
• Allow the remainder of your portfolio to focus on long-term growth

Why five years? Research shows that most market downturns recover within that timeframe. This approach provides breathing room during market volatility while keeping most of your money working for the long term.
Making It Work with Real Numbers
Let's say you've calculated that you'll need $2,000 per month beyond your pension and Social Security. Here's how to build your War Chest:

1. Calculate your need: $2,000 × 60 months = $120,000 for your War Chest
2. Divide it up:
   • $40,000 in cash or stable value funds in your DCP [1]
   • $80,000 in high-quality bonds
3. Position your remaining investments for growth

Maximizing Your DCP and Other Accounts
Your Washington Deferred Compensation Program (DCP) and other investment accounts offer tools to implement this strategy [1]:

• Consider the stable value fund for your cash portion
• Explore bond funds for the fixed-income component
• Maintain appropriate growth investments for the long term
• Review and rebalance yearly to maintain your target allocation

The Pension Perspective
Remember that your pension provides a strong financial foundation—a monthly income stream that many Americans don't have. This means you can focus on using your supplemental savings (DCP, IRAs, and other investments) to maintain your lifestyle and keep pace with inflation [2].
What many financial advisors miss is how this pension foundation should influence your investment approach. The traditional risk models often fail to properly account for the value and security of a government pension.
Next Steps for Washington Public Employees

1. Calculate your expected pension and Social Security income using the DRS benefit estimator
2. Determine how much additional monthly income you'll need in retirement
3. Begin building your War Chest using the framework outlined above
4. Consider consulting with a financial advisor who specializes in working with Washington public employees and understands the nuances of the DRS system [3]

Managing risk in your final working years isn't about eliminating it entirely—it's about finding the right balance for your specific situation. With your pension as a foundation and a thoughtful strategy for your other investments, you can approach retirement with greater confidence.
Your career serving the public in Washington state has provided you with valuable retirement benefits. Now is the time to optimize how these benefits work together to support your retirement goals.
Sources:
[1] Washington State Investment Board (2025). "Long-term Investment Strategy Report"
[2] Journal of Pension Economics and Finance (2025). "Risk Management in Public Sector Retirement"
[3] Financial Planning Association (2025). "Retirement Income Strategies for Public Employees"

-Seth Deal