When retirement is on the horizon, many people instinctively shift their pension investments to low-risk options like bonds and money markets. It feels like the safe move - protecting savings from market downturns. But what if this conservative strategy is actually holding you back?
Most of your retirement fund’s growth happens in the last five years before you retire. And if you still have decades to live after you stop working, you’ll need that money to keep growing. According to Stian de Witt, Head of Financial Planning at NMG Benefits, maintaining an aggressive investment approach - even in retirement - can be the key to financial longevity. The secret? A well-structured portfolio, professional guidance, and a smart withdrawal strategy.
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1. Living Annuities Let You Keep Growing
Traditional life annuities lock in your income and portfolio structure at retirement, limiting growth potential. But living annuities allow for flexibility, keeping your savings invested in higher-return assets like equities and property. This means your portfolio has time to recover from market fluctuations - helping your money last longer.
2. Timing the Market Pays Off
Market dips are inevitable, but history shows that high-risk investments tend to rebound and even outperform conservative portfolios over time. If you have additional income sources, holding off on withdrawals during downturns can give your investments time to recover - leading to better long-term returns.
3. Inflation is Your Biggest Threat
Moving too much of your retirement savings into cash or bonds can mean your money isn’t growing fast enough to keep up with inflation. Over time, this erodes your purchasing power. Keeping a significant portion in equities ensures your investments continue to outpace inflation, sustaining your lifestyle for years to come.
4. Diversification is Key
Don’t put all your eggs in one basket - especially not just in the local market. De Witt recommends holding at least 30-40% of your assets in offshore equities to hedge against local market risks and benefit from global economic growth. A well-balanced portfolio enhances resilience and long-term performance.
5. Managing Sequential Risk
One of the biggest risks in early retirement is a market crash. If your portfolio takes a hit in the first two years and you’re forced to withdraw from it, you could shorten your retirement income by as much as seven years. The solution? A “cash bucket” strategy - keeping a portion of your funds in cash to cover short-term needs while allowing your more aggressive investments time to recover.
6. Don’t Ignore the Tax Advantage
Taxes can take a significant bite out of your retirement income if not managed properly. Strategic tax planning - such as withdrawing from different investment vehicles at the right time - can reduce your tax bracket and stretch your savings by an extra 2-4 years.
The Case for Staying Aggressive in Retirement
The old-school approach of playing it safe with low-risk investments in retirement is no longer the best way forward. With smart planning, diversification, and an aggressive yet structured investment strategy, you can ensure your money not only lasts but continues to grow.
Want to make the most of your retirement savings? Speak to a Certified Financial Planner who can help tailor a strategy to your needs.