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Managing Risk as You Approach Retirement

Traditional pension portfolios move savers' cash into lower-risk assets as they approach retirement, but new research from 7IM suggests this default should be re-considered

Emma Wall 25 May, 2017 | 4:45PM

 

 

 

Emma Wall: Traditional pension portfolios are high-risk at the beginning of your savings journey and are derisked as you approach retirement, moving your portfolio out of equities and into bonds and cash. This is known as lifestyling. However, new research from Seven Investment Management suggests that this is actually the opposite of what you should be doing in order to survive your retirement and not run out of money before you die.

The old methodology worked when you were forced to buy an annuity at 65 or whatever your state pension age was. You wanted to make sure you had capital preservation in those last couple of years before you have to buy that annuity. Now that you no longer have to buy an annuity, the goalposts have been moved and you're saving not at the end date of 65, but 75, 85, 95 or whatever your life expectancy is.

Seven Investment Management have shown that high-risk assets work best for you when you have the largest amount of money and your pot gets bigger as you get older. So, it might be time to get rid of traditional pension portfolio theory and stick to higher-risk assets as you approach retirement and indeed through retirement in order to make sure you don't run out of cash before you die.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk