Investing Around Retirement: Finding the Right Balance

By Jason Choy, InvestNow Senior Portfolio Manager

Much of the investing conversation focuses on building a nest egg for retirement. But what happens once you’re already retired – or just a few years away? This stage often receives far less attention, yet it can be just as important as the accumulation phase.

Turning a certain age doesn’t automatically mean you need to overhaul your investment strategy overnight. The question is: how should you adjust your approach to suit this new chapter of life?

Understanding Risk in Retirement

A common rule of thumb is older investors should take fewer risks. The reasoning is simple: a shorter investment horizon means less time to recover from market downturns.

However, the shift toward a more conservative portfolio doesn’t have to happen suddenly at retirement. Many people live 20, 30, or even more years in retirement, giving them ample time to ride out any market fluctuations.

Completely moving into low-risk investments like cash may feel safe, but it carries its own danger – your money could struggle to keep pace with inflation, potentially shrinking your purchasing power over time. Maintaining some exposure to growth assets helps ensure your savings last as long as you need them.

The key is balance. There may no longer be a need to take the same risks you did in your 30s, but you don’t necessarily need to swing entirely to the safe side either. Thoughtful risk management can support your lifestyle throughout retirement.

Tailoring Your Portfolio to Your Needs

One practical approach is to align your investments with when you’ll need your money. A “bucket” system can help:

• Short-term needs (0–5 years): Funds earmarked for immediate spending – travel, home improvements, or day-to-day costs – this should be kept in conservative investments, where the value is stable.
• Medium-term needs (5–10 years): Money needed in the near future could go into balanced funds, blending growth and income assets to manage risk, while still aiming for returns.
• Long-term needs (10+ years): Even in your retirement years, you may have expenses a decade or more ahead. Growth-focused investments can help your savings outpace inflation over the long term.

This method offers peace of mind: money you’ll need sooner is secure, while funds for later years have the potential to grow.

How Much Risk Is Right?

The answer varies for everyone. Factors like your current savings, homeownership, expected spending, and whether you want to leave an inheritance all influence your risk tolerance.

A few key considerations:

• Balancing risk and growth: Avoiding risk entirely may limit opportunities for your portfolio to sustain your lifestyle over time. Even a modest allocation (30–40%) to growth assets can make a meaningful difference.
• Time horizon matters more than age: A 65-year-old aiming to fund a big holiday spend to celebrate their 80th birthday faces a very different investment horizon than someone planning to spend most savings in the next five years.
• Flexibility: Retirement can be unpredictable. You may want to spend more in your active years and less later. A portfolio that accommodates these changes without locking you in is ideal.

Approaching Retirement

As retirement nears, it could be wise to start gradually shifting toward the investment strategy you’ll follow in retirement. This “transition phase” allows you to maintain familiarity with your portfolio, gauge potential cash flow, and adapt expectations before fully stepping into retirement.

Think of it as a “retirement rehearsal”. Deciding what this approach might look like involves the same principles as an annual portfolio review – a regular practice that ensures your investments stay aligned with your goals and stage of life.

Other Factors to Keep in Mind

Income generation: Some retirees prefer investments that deliver regular income, like dividends or interest from bonds. These can reduce the need to sell assets to fund living costs while maintaining growth upside.

Diversification: Spreading your investments across asset types, sectors, and regions remains important, even in retirement. Proper diversification minimises the impact if one investment underperforms.

Tax efficiency: How you structure your investments can affect the tax you pay, and therefore how much money is available to spend. Consulting a professional can be valuable here.

Regular review: Circumstances evolve even in retirement, so reviewing your portfolio at least annually is still important to ensure it remains aligned with your needs.

Whether you’re approaching retirement or already there, a robust investment portfolio aims to provide both stability for today and growth for tomorrow.

InvestNow offers access to a broad range of funds – from conservative to growth-oriented – so you can tailor your investments to match your stage of life. Retirement doesn’t mark the end of your investing journey; it’s simply a new chapter.