Risk Management in Retirement
Understand the key risks that can erode pension income over time and how to structure withdrawals to manage them.
Risk Management in Retirement
Once you reach retirement, it’s easy to think the hard work is done. But in many ways, managing risk becomes more important —because you may now rely on a fixed pot of money to last 25–35+ years.
Three major risks can derail even awell-funded pension plan:
- Longevity risk: Outliving your money
- Inflation risk: Your money losing value over time
- Withdrawal risk: Taking too much, too soon
1. Longevity Risk: You Might Live Longer Than You Think
According to the ONS, a healthy 65-year-old today has a roughly 1-in-4 chance of living to 95.
This matters because:
- Your money needs to last longer
- You might face more care costs
- You need strategies that can flex with age
2. Inflation Risk: Silent, but Powerful
Inflation doesn’t feel dramatic in any given year — but over a long retirement, it adds up.
Even at 2–3%per year, a fixed pension income can lose 30–45% of its value in real terms.
Tip: Avoid relying solely on fixed-income sources unless they are inflation-linked.
3. Withdrawal Rate Risk: Don’t Spend Too Fast
The classic 4% rule (withdraw 4% of your pot per year) may not always be appropriate — especially in today’s low-yield, high-volatility world.
Flexibilityis key: You might need to adjust withdrawals in bad years, or build in a buffer.
4. Managing the Big Three Risks
Tactics to improve resilience:
· Use a bucket strategy (short, medium, long-term pots)
· Delay drawdown where possible
· Prioritise guaranteed income (e.g. State Pension, annuities)
· Keep some growth assets to outpace inflation
· Review plan yearly
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