Risk capacity is how much risk you can afford to take as an investor and depends on such aspects as your earning power, time horizon, and current assets. Johnson explains that it is "easily determined and quantifiable."  Ward also agrees that risk capacity is "just basic math" that shows your ability to withstand a financial setback. Look at these primary factors to determine your risk capacity: Income you'll require during retirement Number of years until retirement  Current income and savings rate Current assets accumulated Johnson points out that certain circumstances typically increase your risk capacity. A longer time horizon, substantial assets, and significant earning power all offer greater ability to bear risk. Conversely, factors like a short time horizon, less money in savings, and lower income potential reduce your risk capacity.