You may still have years to go before retirement, or it might already be coming into view. Either way, the money you’re building today has an important job to do: help create the financial future you want when work is no longer your main source of income.
Investment planning for retirement is about making deliberate choices with your pension, savings and investments as that future gets closer. It means thinking about how much growth you may need, how much risk you’re comfortable taking and how your approach might need to change over time.
The earlier you start thinking about these questions, the more time you have to shape your plans. And as retirement gets closer, the focus can gradually shift from building wealth towards how you’ll use it, including where your income will come from, how you’ll manage periods of market uncertainty and what you might want to leave behind.
In this guide, we’ll look at the decisions that matter when investing for retirement, from risk and diversification to generating an income and adapting your investments as your plans and priorities change.
As retirement gets closer, your investment priorities change
Investing while you’re building towards retirement is different from investing once you start relying on that money. When you’re still earning, you may be adding to your pension and investments each month, with years ahead for your money to grow and recover from periods of market uncertainty.
As you approach retirement, those contributions may slow or stop and withdrawals could begin. That changes the role your investments need to play. They’re no longer just there to build wealth. They may soon need to provide an income, fund larger expenses and support you for the rest of your life.
This makes market falls particularly important to think about. Taking money from investments when their value has fallen means selling more of them to generate the same income. With less left invested, there’s less money available to benefit if markets recover. If this happens during the early years of retirement, it can have a lasting effect on how long your portfolio may support you.
But avoiding investment risk altogether isn’t necessarily the answer either. Retirement can last for decades, during which inflation can steadily reduce your spending power. Keeping some of your money invested for longer-term growth can therefore remain important even after you’ve stopped working.
The challenge is finding the right balance for your retirement. That could mean having money available for shorter-term spending while investing other parts for the years further ahead. As you move towards and through retirement, that balance can change with your income needs, circumstances and plans.
Your investment strategy should move with you
The way you invest for retirement shouldn’t stay the same throughout your life. As retirement moves closer, the job your money needs to do changes too. Understanding that can help you take an appropriate level of risk at each stage, rather than investing the same way simply because it’s what you’ve always done.
When you’re building towards retirement, the focus is often on giving your money the opportunity to grow. You may be making regular pension contributions, reinvesting returns and have many years before you expect to start taking money out.
That longer timeframe can give you more opportunity to recover from periods when markets fall. It doesn’t mean taking as much risk as possible, though. Your investments still need to reflect how comfortable you are with fluctuations, your circumstances and how much investment risk you actually need to take to reach your goals.
The closer you get to retirement, the more important it becomes to understand when you’ll need your money and where your income will come from. A significant market fall shortly before retirement can be harder to recover from if you’re planning to start making withdrawals soon afterwards.
This doesn’t mean automatically moving everything into lower-risk investments at a certain age. Instead, you might start separating money you expect to need sooner from money that can remain invested for longer. Your pension, State Pension, savings and other income sources can all influence how much investment risk it makes sense to take.
Retirement brings another shift. Your investments may now need to provide money for everyday spending while continuing to support you for many years ahead.
That creates a balancing act. Holding too much in investments that fluctuate significantly could leave you exposed to market falls when you need to make withdrawals. But becoming too cautious could make it harder for your money to keep pace with inflation over a retirement that might last several decades.
One approach is to think about your money in different timeframes. Money you’re likely to need in the near future may be held differently from money intended to support you 10 or 20 years from now. This can help you avoid treating your entire retirement pot as though it has the same purpose.
There’s no single age when your strategy needs to change. Someone retiring at 55 with few other sources of income may need a very different approach from someone working until 70 with a secure income covering much of their spending. What matters is that your investments evolve with your plans, your income needs and the life you’re actually preparing for.
Know how much investment risk is right for you
Risk isn’t just about whether you’re comfortable seeing your investments rise and fall. When you’re planning for retirement, there are two sides to consider: how much risk you’re willing to take and how much you can actually afford to take.
Your attitude to risk is the personal side. How would you feel if your investments fell significantly in value? Would you be comfortable waiting for markets to recover, or would you be tempted to sell? Understanding this matters because an investment strategy only works if you’re comfortable enough to stick with it when markets become unsettled.
Your capacity for loss is more practical. It looks at what a fall in your investments would actually mean for your life. If your portfolio dropped in value, could you still afford the retirement you’ve planned? Would your essential spending be covered by other income, or would you need to cut back or change your plans?
For example, two people could both be comfortable taking investment risk but have very different capacities for loss. Someone with a secure pension income covering their everyday spending may be able to withstand a larger fall in their investments. Someone relying heavily on their investment portfolio to pay the bills from the first day of retirement may have much less room for the same loss.
That’s why simply describing yourself as a cautious, balanced or adventurous investor isn’t enough. A good retirement investment strategy considers your attitude to risk alongside your income needs, timescale, other assets and ability to absorb losses.
These things can change as your life does. If you’re a Reeves client, we’ll review your plans with you at least annually, including whether your investments and level of risk still reflect your circumstances and goals. And you don’t have to wait for your next review. If something changes in the meantime, you can get in touch with your advice team to talk through what it could mean for your plan.
Diversification: why one pension doesn’t mean one basket
You’ve probably heard the phrase “don’t put all your eggs in one basket”. It’s a simple way of explaining one of the most important principles of investing: diversification.
Diversification means spreading your money across different types of investments, sectors, companies and parts of the world. The idea is that your financial future isn’t too dependent on the performance of any one investment or area. If one part of your portfolio performs poorly, others may behave differently and help reduce the overall impact.
It doesn’t remove investment risk, and a diversified portfolio can still fall in value. But it can help you manage risk more effectively and avoid concentrating too much of your retirement wealth in one place.
There’s also a common misconception when it comes to pension consolidation. Bringing several pensions together into one pension doesn’t necessarily mean putting all your eggs in one basket.
A pension is essentially the account or wrapper that holds your investments. Within a single pension, your money can still be spread across a wide range of funds and underlying investments, including different asset classes, markets, sectors and companies. So you could have one pension account while still owning a highly diversified investment portfolio within it.
Equally, having several different pensions doesn’t automatically make you more diversified. If they’re invested in similar funds, markets or companies, you could have considerable overlap without realising it. What matters is what your pensions are actually invested in, rather than simply how many pension accounts you have.
That doesn’t mean pension consolidation is always the right choice. Existing pensions can have valuable guarantees, benefits, charges or features that could be lost by transferring, so each one needs to be considered carefully before making a decision.
Diversification also needs ongoing attention. Investments move at different rates, your circumstances evolve and what you need from your portfolio can change as retirement approaches. If you’re a Reeves client, we’ll review your investments with you at least annually to make sure they continue to reflect your plans, attitude to risk and stage of life. If your circumstances change between reviews, you can also get in touch with your advice team to discuss whether your plan needs to change.
Protecting your plans when you start taking an income
The move from building your retirement savings to actually taking money from them is an important turning point. Once withdrawals begin, market falls can have a greater impact on your plans than they did while you were still building your wealth.
Imagine markets fall just as you start taking an income. If you need to sell investments to fund your spending while their value is down, you’re locking in some of those losses. That money is no longer invested, so it can’t benefit from a later market recovery. If this happens repeatedly during the early years of retirement, it can put greater pressure on your remaining portfolio.
This is known as sequence of returns risk. It’s not simply the average investment return over your retirement that matters. The order in which good and bad years happen can make a difference too, particularly when you’re making regular withdrawals.
Planning ahead can help you manage this risk. You might keep some money in cash or lower-risk investments to meet nearer-term spending, giving other investments more time to recover when markets fall. If your circumstances allow, you may also have some flexibility over how much you withdraw during difficult periods rather than taking exactly the same amount regardless of what markets are doing.
It’s also worth looking beyond your investment portfolio. Your State Pension, workplace or private pensions, savings and any other sources of income can all influence where your retirement income should come from and when. Coordinating them can help reduce unnecessary pressure on your investments at the wrong time.
The right approach will depend on how much income you need, where that income is coming from, how much flexibility you have and how your investments are performing. Keeping your income strategy under review means you can adapt as markets, spending and circumstances change, rather than leaving your retirement plan on autopilot.
How Reeves builds an investment plan around your retirement
At Reeves Independent, we don’t believe retirement investing should start with an off-the-shelf portfolio. It should start with you: what you want your money to achieve, when you might need it and how much investment risk is right for your circumstances.
We’ll look at where you are in your retirement journey, from building your wealth years ahead of retirement to preparing to take an income or managing investments once you’ve retired. We’ll also assess your attitude to risk and capacity for loss, so the investment strategy reflects both how comfortable you are with market movements and how much of a fall you could realistically absorb.
From there, your money can be invested across a diversified range of investments, supported by independent research. The aim is to build a strategy that reflects your goals and gives your money the right balance between growth, risk and the income you may need over time.
But the plan doesn’t stop once your money is invested. We’ll formally review your plans with you at least once a year, including whether your investments remain appropriate as markets, your circumstances and your retirement plans evolve. And if something changes between reviews, you can get in touch with your advice team to discuss what it could mean for your plan.
It means your investment strategy can evolve with you, rather than being something that’s put in place today and expected to remain right for the rest of your retirement.
Turn your retirement plans into a clear investment strategy
Good retirement investment planning isn’t about making one perfect decision. It’s about building a strategy around the retirement you want, then adapting it as your circumstances, income needs and priorities change.
Whether retirement is still years away or you’re already taking an income, we can help you understand how your pensions, savings and investments fit together. We’ll look at the level of risk that’s right for you, how your money could be invested and what may need to change as you move through the different stages of retirement.
Your free financial review gives you the opportunity to understand where you are now and what your next steps could look like. There’s no obligation to proceed, and you won’t pay an advice fee unless you choose to go ahead with our recommendations.
Start your free financial review with the Reeves team and take the next step towards an investment plan built around you.
The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a guide to future performance. This guide is for general information only and does not constitute personal financial advice or a recommendation. Tax and pension rules depend on your individual circumstances and can change.