Investing in retirement
In the past investing when approaching retirement was all about reducing risk and converting investments into cash ahead of buying an annuity. That is still the case if you do intend to buy an annuity.
You need to think longer term if you are going to keep your pension fund invested and take an income via drawdown or lump sums. Your pension pot may need to provide you with an income for 30+ years and to do this it should ideally generate income and preserve your capital. You should always research any investments thoroughly, and never be rushed or manipulated into making decisions. Your pension will be one of your most valuable assets and you should always be wary of pension fraud.
How you invest will depend on how you plan to use your pension fund – will it be the main source of regular income, used to provide for one-off expenses, left to provide for your family when you die or a mixture of all of these?
When choosing investments you also need to consider the level of risk you are willing to take and how a downward turn in the market would impact your retirement income. The same principles of investing as usual apply and a well-diversified portfolio with a range of assets, geographical areas and sectors will help you weather most storms.
Generating cash to pay your pension income
When you reach retirement age, if you need to withdraw money from the fund, either regularly or ad hoc then you will need to generate cash within your fund to make your pension payments. This could be from income generating shares or funds or by selling investments.
If you are dependent on this income then it might be a good idea to keep some of your portfolio in cash so that you are not forced to sell investments when markets are low – although investing in cash will give a poor return, especially in times of higher inflation. Cash could be generated by income paying investments such as corporate bonds or equity income funds.
You may consider investing in the income units of funds, for example, rather than the accumulation units. The former indicates that dividends or interest will be paid to you in cash. In contrast, an accumulation version of a fund is designed to offer you growth in the fund rather than income, so any income generated will be reinvested within the fund.
Need help investing for an income?
Finding income-paying investments for your retirement can be hard. But we can help.
Our investment ideas can make investing easier, with ready-made portfolios you can manage yourself, a list of favourite funds to lighten your research load, and no-hassle funds that let you leave the hard work to us.
Each investment idea has income-paying options. Simply choose the one that suits you and your retirement goals
The AJ Bell funds are an easy way to get investing. Just choose your fund, and how much to invest. We do the rest.
Two AJ Bell funds are designed for income – one that aims to hold your capital steady, the other to grow it in line with inflation.Browse funds
The AJ Bell Ready-made portfolios can help you hit the ground running. Each is pre-built by us for you to manage yourself.
The ‘Income’ Ready-made portfolio aims to deliver regular payments while achieving steady growth.View portfolios