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  • Are you taking enough risk?

    Deciding how much risk to take when investing in retirement can be tricky. We look at how you can decide what level of risk is right for you.

    Last Updated: 1 January 2003

    Risk is a certainty in investing but deciding how much risk to take is tricky.

    Risk management is all about finding the sweet spot between risk and reward – one that’s right for your circumstances and financial goals.

    In retirement, your financial goals may centre around providing yourself with an income that will last the rest of your retirement in the absence of a regular salary. Or they may focus on growing or preserving your wealth, either for yourself or to pass on to loved ones.

    We look at how you can decide if you are taking the right level of risk with your investment choices in retirement, but this isn’t personal advice. Unlike the security offered by cash, investments can go down as well as up in value, and you could get back less than you invest. If you’re not sure what is right for you, ask for financial advice.

    What’s wrong with low risk?

    Believe it or not, not taking enough risk has its risks.

    Although a low-risk portfolio might help you sleep more comfortably, it could mean your investments don’t grow fast enough to achieve your goals. This is called shortfall risk.

    To take an example, it can be tempting to avoid risk by holding all your hard-earned cash somewhere that feels safe, like a savings account. But, in a high-inflation environment, it’s harder for your savings to keep up, meaning they could lose real-term value over time.

    It might be a lower-risk option, but it comes with lower reward.

    Meanwhile, investing some of your money comes with a higher risk but can offer higher reward.

    It’s never a certainty, and depending on the investment, it can be a bumpy ride. After all, the value of investments can go down as well as up.

    How much risk should I take?

    This is a big question, and there’s no right answer. Your tolerance to risk is unique, and the best person to decide how much risk to take is you.

    Having said that, investing is something that’s best done over the long-term, so there are a few factors to consider. Your age is one of them.

    If you’re early on in your retirement, you have a longer investment horizon. This means you may be able to afford to take more risk as you have longer for your investments to hopefully grow in value and ride out the inevitable ups and downs of the markets.

    Later in your retirement, with a shorter investment horizon, preservation of wealth may be more important to you. In this case, a lower-risk investment option might be suitable.


    Age isn’t the only factor to consider here, though.

    You may be planning to pass on your pension savings when you die. Any money in a pension is usually exempt from Inheritance Tax (IHT), as it falls outside of your estate.

    If this is your plan, you may opt to take a more growth-oriented approach to investing, instead of income-generating. This will also impact the level of risk you’re willing to take with your investments.

    It’s worth remembering pension and tax rules can change and the value of any benefits depend on personal circumstances.


    Reviewing your investments

    With these factors in mind, it’s important to periodically check in with your investments to see how they are performing. It’s also an opportunity to assess whether they are still aligned with your goals and appetite for risk.

    Your attitude to risk may change over the course of your retirement, depending on your personal circumstances and life events.

    For help reviewing your portfolio, check out our step-by-step guide.

    Why some cash is important

    As a lower-risk and lower-reward investment option, it could be unwise for your entire portfolio to be held in cash. But, as a rule of thumb, if you are in retirement it’s worth holding one to three years’ worth of expenses in a savings account that’s easy to access.

    This is because, if you’re living on a lower fixed income in retirement, you have less flexibility to meet unexpected costs, so you need more savings to fall back on such as the need to fix the boiler or a car repair.

    You may also want to have some further cash handy for a specific reason, for example, to act as a buffer in case of a sudden drop in the market which impacts your investment income.

    The Active Savings account provides one online platform where you can choose as many savings options as you like, from many bank and building society partners. You can pick and mix between easy access and consistently competitive fixed rate products.

    What help is available?

    What you do with your pension or life savings is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re not sure. The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.

    This article isn’t personal advice. We offer a range of information and support to help you plan your own finances.

    We also have a Chartered advisory service, where one of our financial advisers can help you understand your needs and then they’ll put together a bespoke portfolio to help you achieve your goals. Please note this service is subject to charges.

    Discover financial advice

    What did you think of this article?

    This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

    The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

    Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

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