Investing in retirement

You’ll have many years ahead of you once work finishes. So, it’s important to take time now to consider how you’re going to invest your pension savings, to help you enjoy the kind of retirement you’ve been looking forward to.

If investing is new to you, it's worth remembering that your pension has been invested since you and/or your employer first made a contribution. During that time the value of your pension will have fluctuated according to market conditions, and the value of your pension and the income you get from it will continue to go up and down for as long as you stay invested. This isn't something to fear and is a normal part of investing, but it is important to understand what it means in retirement.

Below we've put together answers to some common questions you may have about investments, inflation (the rising price of goods and services) and planning for the retirement you want.

What sort of retirement do you want?

Life in retirement looks different for everybody. The first thing to work out is how much money you’ll need for the lifestyle you want. To help, we’ve created a range of easy-to-use tools and calculators. Our Retirement budgeting calculator looks at your income and expenses and gives you an idea of whether your desired lifestyle is within reach.

How long should you plan for?

Generally, we are living a lot longer than previous generations and this gives us the benefit of having more time to enjoy our retirement years. Today, the average 65-year-old man can look forward to 18 years ahead of him, while women have longer still, at 20 years¹.

Of course, many live far longer than the average. For that reason, it makes sense to plan for a minimum of 25 years. Knowing your planning period is important when it comes to making sure your retirement savings last.

¹ Office for National Statistics, National Life Tables 2020-2022.

How does inflation affect your pension pot?

It’s also important to factor in the impact of inflation on the value of your savings during your retirement years. As an example, if inflation averages 2% a year, a car that costs £25,000 today would cost you more than £40,000 in 25 years’ time.

The following graph shows that with inflation at 3% or 4%, the effect is even more pronounced. In practice, this means you will probably have to increase the amount you withdraw from your pension each year.

How much should you withdraw?

If you make one-off or more regular withdrawals from your pension pot, its value could go down. For this reason, it’s important to think carefully about how much you withdraw.

One simple, commonly-used ‘rule of thumb’ suggests that a level of income between 4% and 5% per annum from age 65 is likely to be sustainable in the long term. You then adjust the amount every year after that for inflation.

It’s important to remember that this is a rule of thumb and everyone’s circumstances are different. For example, you might want to withdraw more in the early years to spend on home improvements or travel. You would then need to withdraw less in the later years.

The minimum age you can normally access your pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless you have a lower protected pension age. There are different tax implications of withdrawing money from your pension depending on your personal circumstances. All tax and pension rules may change in the future.

What should you think about when choosing investments in retirement?

When choosing how to invest, factors you should consider include your age, attitude to risk, planned retirement age and overall financial situation. 

We provide you with a wide range of funds to choose from. Each fund has its own factsheet, where you’ll find some of the investments it holds, the level of growth it aims for and its level of risk. Typically, funds that aim for higher growth may carry more risk and be more suitable for those investing for the longer term. In contrast, funds with lower levels of risk may achieve less growth.

Remember, growth is not guaranteed, the value of your pension savings can go down as well as up so you may get back less than you have saved. If you’re not sure which funds are right for you, an authorised financial adviser will be able to help.

See more Investment Pathways FAQs

Remember, it’s a good idea to review your investments on a regular basis, to check that they are still right for your plans.

Do you need help deciding which investment would be best for you?

None of the information above is a personal recommendation for any particular investment or course of action. If you are unsure of the right approach for you personally, you should speak to an authorised financial adviser. To find the right adviser for you, visit the  MoneyHelper's Retirement Advisers directory or unbiased.co.uk.