Managing money in retirement

29 April 2019



Savers now have more flexibility than ever before in retirement. Of course, this comes with greater responsibility and more scope to make mistakes. Here we look at some of the key considerations when it comes to investing in retirement

The price of flexibility

Pensions drawdown is becoming an increasingly favoured option amongst retirees, because of the flexibility that comes with it. With this option, your clients will need help with managing how much income they take, when they take it, and how the remaining money is invested.

Having such control and flexibility can certainly be a rewarding option, but it comes with a higher degree of risk. Large losses early in retirement can have a very negative impact on someone’s ability to sustain an income for as long as they’d like to. This makes sense if you think about it. Large losses early on when the pension pot is at its largest mean you have lost more money in pounds sterling terms and this limits how long you can take an income. Later on, when the pot is smaller, the same percentage loss entails a smaller loss in pounds sterling terms and so it has a smaller impact on your ability to draw income.

As an adviser, it’s really important that you keep a close eye on your clients’ investments throughout retirement, to check they’re doing what they need them to do. Drawdown needs a lot of maintenance and you might need to tweak the plan slightly as you go along. For example, if markets perform well your clients might be able to increase their income levels, and the opposite could be true if markets perform badly. 

Balancing act

The added difficulty is that not many people can control exactly when they retire, or what the markets will be doing at that time. That’s why it’s so important to have a well thought out investment strategy for when the time comes.

Investing is all about balancing the reward you want to get with the risk you’re prepared to take. How your clients feel about risk is one of the most important parts of picking the right investments. You also need to think about their capacity to take risk and the potential implications of any investment losses.

There’s a tension here. If your clients don’t take enough risk, there’s no way their money can grow enough to sustain a reasonable income long into retirement. On the other hand, if they are exposed to the risk of large losses early in retirement, they could end up in the same place with the money running out unexpectedly early.

Retirement experiment: We tested 1000 possible future investment scenarios to see how much money someone might have left over in their pension after starting with £100k and taking £4k per year for 25 years. The chart below shows what a quite good outcome, and a quite bad outcome, might look like for different levels of investment risk taken. What we found was that you’re likely to have more left over at the end of retirement when a higher risk investment strategy is taken. However, the range of outcomes with a high risk strategy is much wider- meaning there is a lot more uncertainty involved. This is a brilliant opportunity for advisers to add value, helping clients understand how much uncertainty they are comfortable with.

 income sustainability

It’s a never ending game

What's clear is that there isn't a one size fits all solution to investing for retirement. The key to managing money in retirement is, as is the case with many things in life, to have a good plan. This plan will need to take account of objectives, as well as your clients’ willingness and ability to take risk. But it doesn’t stop there. You’re going to have to regularly review and actively manage the plan. Your clients’ income requirements and objectives will evolve over time, and their investment strategy will need to evolve too, to keep them on track.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.