Retirement is one of the biggest financial transitions you’ll ever make. For years, the focus has been on building your savings. Then, almost overnight, the question changes to how you use them.
That shift can feel unsettling. You may be stepping away from a regular income for the first time in decades, while trying to plan for a future that could last 20, 30 or even 40 years. At the same time, there’s a natural tension at the heart of retirement. You want to enjoy your money and make the most of your time, but you also want to feel confident it will last.
Life rarely follows a straight line. Alongside day-to-day spending, there may be larger, one-off costs such as travel, helping family, or unexpected expenses that come out of the blue. These decisions aren’t just financial. They shape the kind of retirement you experience.
Investing involves risk. The value of investments and any income from them can fall as well as rise and you may get back less than you invest. Investment strategies in retirement involve trade offs and are not suitable for everyone.
Understanding the risks that matter
At Rathbones, when we manage investments for people as they move into and through retirement, we think in terms of key risks that need to be balanced:
• Longevity risk: how long your money needs to last.
You might live longer than expected, so your money needs to stretch further than you originally planned.
• Inflation risk: how rising prices affect your spending power.
Even modest inflation can mean your money buys less over time, especially over a long retirement.
• Market risk: how your investments move over time.
The value of your investments will rise and fall, sometimes sharply, and those movements can affect what you’re able to take out.
• Sequencing risk: the impact of market falls early in retirement.
If markets fall early on while you’re taking money out, it can be harder for your portfolio to recover later.
• Withdrawal risk: how much you take out, and when.
Taking too much, or taking it at the wrong time, can put pressure on your finances later in retirement.
Each risk matters, and they’re closely connected. Moving one often affects the others. For example, avoiding market risk altogether may feel safer, but it can increase your longevity risk.
Without realising it, you’re probably already thinking about it. You might be wondering how long you’ll live and whether your money will last that long. You may be concerned about what happens if markets fall just as you start taking income, or whether rising costs could affect your standard of living. You may also be thinking about how your spending could change, and what might happen if life throws up something unexpected. Later in life, you may wonder how spending on care costs could impact your retirement plan. Retirement brings uncertainty, which can influence the financial decisions you make.
Why playing it safe isn’t always safe
Given these unknowns, it’s understandable that many people feel the instinct to reduce investment risk as they approach retirement. In the past, this shift often made sense. Retirement income was typically secured through an annuity –
exchanging a lump sum from your pension for a set amount of money to be paid out regularly – at a fixed point in time , so avoiding a market fall just before that decision was important.
Retirement today looks very different. Many people now draw an income from a mix of pensions, savings, and other assets, and retirement itself can last for decades rather than years.
That changes the way we think about risk. If your retirement could span 30 years or more, you’re still a long-term investor. Long-term investing generally involves accepting some risk in order to achieve growth. But reducing risk too much, too early can create a different challenge, as your money may not grow enough to keep pace with inflation or support your lifestyle.
Avoiding risk doesn’t remove uncertainty. It just shifts it elsewhere.
Looking beyond income
A common starting point in retirement is to focus on income. With a regular salary no longer coming in, it’s natural to look for ways to generate cash flow from your investments.
Traditionally, that has meant relying on dividends or interest, with the aim of living off income while leaving capital untouched. Although this approach can feel reassuring, it can also be restrictive.
Investments generate returns in two ways: through income and through growth in value. Together, these form a total return, the overall growth of your investment. Taking a total return approach allows your portfolio to work more flexibly, rather than relying on a fixed level of income alone.
In some years, income may cover much of your spending. In others, you may draw on capital, particularly for larger or one-off expenses such as travel or helping family. This can allow your investments to support your life more naturally, rather than trying to fit your life around a fixed income.
It can also support broader diversification and allow part of your portfolio to remain focused on longer-term growth, which may be important in helping your money last.
Building a portfolio that works for you
Turning this thinking into a practical strategy requires structure. We start by understanding what matters to you: your plans, your priorities and how you want to live your life in retirement. From there, our investment managers build an approach designed to balance your needs today with your goals for the future.
In practice, this process often involves separating your portfolio into different parts, based on time horizon and purpose. Short-term spending needs can be supported by more stable assets (such as short-term government bonds), helping to reduce the impact of market movements.
At the same time, a portion of your portfolio may remain invested for growth (for example in shares and corporate bonds). This supports longer-term returns and helps your portfolio to keep pace with inflation.
This structure helps manage the trade-off between stability and growth. It may reduce the need to sell investments at the wrong time, while allowing your portfolio to benefit from long-term market returns. Just as importantly, it provides flexibility, so your strategy can adapt as your circumstances and the wider environment change.
Delivering this in practice involves more than setting an allocation and leaving it in place. Ongoing decisions need to be made about where to take withdrawals from, how much risk to hold, and how to respond to changing markets and personal circumstances.
Discretionary portfolio management, where you hand day-to-day investment decisions over to us, allows us to make these decisions on your behalf, helping to keep your portfolio aligned with your needs. Discretionary portfolio management doesn’t remove investment risk, and outcomes depend on market conditions and individual circumstances. Account charges and withdrawals reduce how much money stays invested. This can affect the long term value of your portfolio.
Deciding how much to take
The question of how much to withdraw sits at the centre of retirement planning. In our experience, there are two common tendencies.
Some people take less than their portfolio could support, often because they’re concerned about the unknowns. Others take more, based on optimistic assumptions about returns or without fully considering how long their money needs to last. Both approaches carry risks.
A more balanced approach is to build flexibility into your withdrawals. Rather than setting a fixed income and leaving it unchanged, it can be helpful to review it regularly and adjust where needed.
Spending is rarely consistent throughout retirement. It often starts higher, as people travel or pursue new experiences, before changing over time. There may also be larger, one-off expenses that need factoring in.
A structured approach can help you make informed decisions about how much to take and when, while keeping your longer-term plans in view.
A more confident way to invest in retirement
Retirement brings a new set of questions, not just about investing, but about how your money supports the life you want to live. There will always be uncertainties, whether around how long your money needs to last, how markets will behave, or how your circumstances might change.
A well-structured investment approach can help bring clarity to those uncertainties. It allows you to balance short-term stability with long-term growth, draw on your portfolio in a flexible way, and adapt as life evolves.
Above all, it can provide confidence. Confidence that your money is working in a way that reflects your goals, that your plans are broadly sustainable, and that you can make decisions about spending with greater clarity.
At Rathbones, this combination of structure, flexibility, and ongoing guidance sits at the heart of how we support people in retirement. The aim is not simply to preserve wealth, but to help you use it with clarity and purpose so it supports the life you want to lead.
Talk to your Rathbones adviser or fill out the contact form below to explore how we can tailor this approach to your unique retirement goals and situation
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Case studies
A different kind of investment journey
Every retirement takes its own path, but these illustrative examples, based on real-life situations, show how a thoughtful investment approach can help turn plans into reality. They aren't a guide to future performance and similar outcomes aren't guaranteed.
Finding the confidence to spend more. Rohan retired with significant savings but was reluctant to draw on them. By structuring his portfolio to cover short-term needs while keeping the rest invested for growth, he felt more comfortable increasing his spending. He now travels more, keen to visit all of the National Parks , treats his grandchildren to weekly dinners, and enjoys his retirement, while remaining mindful of his longer-term plans.
Avoiding the risk of taking too much. Susan retired early and initially planned higher withdrawals, based on strong return expectations. Reducing her withdrawal rate and introducing more growth assets meant two things. She was able to continue enjoying her retirement, finally having time to take the sommelier course she’d always wanted to do. But at the same time, she reduced the risk of putting her long-term finances under pressure.
Balancing today and tomorrow. Mark and Nisha wanted to enjoy their retirement, while preserving wealth for the future. By combining stable assets for near-term income with growth investments for the longer term, they achieved a balance that allowed them to spend with confidence while keeping their longer-term goals in sight. They’re planning to go on their around-the-world cruise next year.
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