When you switch over from building up money before retiring to taking money out to move into your retirement, the way you invest your pension may need to change to reflect your new goal.
When you’re building up your money, generally you’ll be trying to grow it as much as possible in the early years. But, as you approach retirement, that may change. Now you’ll be trying to grow it to keep pace with inflation while also trying to protect it from any big drops in value.
Once you begin taking money out, the way you invest your money needs to be more personalised to the goals that you have for using your money.
For example, if you’ve taken some money, maybe to pay off your mortgage, but are not actually intending to start drawing it down for retirement until a few years later, you may want to focus on protecting the money and still trying to grow it slightly.
If, on the other hand, you want to begin using the money to give you an income for the rest of your life, then you should generally choose investments that offer stable growth. This means ones that won’t go up and down too much as the stock markets change.
This is important because if your pension pot drops in value and you continue to make withdrawals from it, it’ll be much harder for it to recover its losses when the stock market rises again. It’s particularly important in the early years of your retirement where it can disproportionately affect how long you might be able to take income for.
Remember, most people will live 20 years or more in retirement and, if you take too much too early, especially when the markets are on a downturn, you could significantly reduce how long your income will last.