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Should you keep investing throughout retirement or stick to cash?
20th August 2024


Saving for retirement is like climbing a mountain: it can feel like an uphill struggle at times, but the view from the top is always worth it.
Once you reach the summit and take in the beautiful views, it’s time to start making your way down the other side of the mountain – or in financial terms, decumulating.
Here at PenLife, we meet many clients who aren’t sure how to manage their money now that they’re retired. One concern that came up in our 2024 Client Survey is: “Should I keep investing in retirement or keep my money in cash?”
There’s so much to say about this topic, so keep reading to find out more about the journey “down the mountain” and how to make it as smooth as possible.
Your retirement investment strategy may be informed by several important factors
Investing during retirement can be a brilliant way to keep your money working hard for you, potentially offering you a continued stream of returns while you’re decumulating.
Importantly, your investment strategy for retirement may depend on how you chose to take your private pension.
If you’re in drawdown, you can continue to invest any earnings you’re still taking from part-time work or properties, for instance, helping to generate returns from your pension pot over the course of your retirement.
Be aware, though, that if you accessed your pension flexibly you are likely to have triggered the Money Purchase Annual Allowance (MPAA). The MPAA limits your Annual Allowance, which is the amount you can invest into a pension scheme each year without incurring an additional tax charge, to £10,000. For most earners who have not accessed their pension, the Annual Allowance is £60,000 as of 2024/25.
This means that if you plan to invest into your pension during retirement, you are likely to have a limit of £10,000 or 100% of your earnings, whichever is lower, above which you may be subject to a tax charge. Remember, tax relief on pension contributions ends when you reach age 75.
On the other hand, if you used part or all of your pension to buy an annuity, your investment strategy may look different.
With a guaranteed income for some or all of your retirement, you may see little reason to keep investing any additional earnings – but remaining invested could still prove useful. Remember, you can also use non-pension vehicles to invest your wealth in retirement, including tax-efficient Stocks and Shares ISAs.
Having an investment fund on top of any annuity income you’re receiving could mean you’re more able to pay for unexpected expenses, offer financial gifts to children, or leave a sizeable inheritance.
Measuring your appetite for risk and desired time frame could help you invest successfully in retirement
Of course, if you’re in your 50s, 60s, or 70s, your investment goals may differ from those of someone in their 30s or 40s.
Largely, this has to do with two interlinked factors: risk and time frame.
Risk
As you may already know, not all investments carry the same level of risk. For example, bonds return a fixed amount over a set period in many instances, giving you an idea of how much you can expect to receive from this investment.
On the other hand, assets exposed to greater volatility, such as commodities like oil and gas, might carry a greater level of risk (but could offer more rewarding returns).
As you age, your appetite for risk might go down. While investors in their 30s and 40s have decades to allow any downturns to even out, you might feel nervous about the value of your investments going down (even though this can happen with low-risk investments too).
Talking to a Financial Planner can help you measure how much risk you’re willing to take as a retired investor.
Time frame
As you read above, your appetite for risk will be affected by the time frame over which you would like to invest. Your portfolio’s performance over a five-year time frame could produce vastly different results than if it was left to grow over a 20-year period.
With this in mind, it is important to consider when you would like to liquidate your investments (or pass them down to the next generation). Working backwards from there, you can work out an appropriate suite of investments that could help you meet these goals.
Cash may not always be “king” if you’re looking to make your money last
You might be reading about investment strategies in retirement and think: “Why can’t I just keep my retirement fund in cash?”
Of course, you are free to manage your money as you choose – and if you are concerned about investment risk, cash may seem like a tempting option. But as you might have read about before, the “risk of no risk” with regards to saving in cash has to do with the rate of inflation, which could erode your money’s spending power.
Indeed, Schroders studied world stock market data from 1926 to 2022 and found that over any 20-year period, equities would grow faster than the rate of inflation 100% of the time. Cash, on the other hand, only beat inflation 60% of the time.
As such, it may not be optimal to keep all of your retirement fund in cash. While having emergency savings and “fun money” available to access in cash is helpful, cashing in all your investments at the point of retirement could mean their growth over the course of your retirement is limited.
Get in touch
Here at PenLife, we understand that you might be worried about running out of money in retirement – and if so, you aren’t alone.
Whether you’re still climbing the mountain, have just reached the top, or are already halfway down, we’re here to help.
To form a retirement plan that helps you gain financial stability during this chapter, email us at enquiries@pen-life.co.uk, or call 01904 661140.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only. All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Category: Retirement