“Lifestyling” is a common way to protect your pension wealth as you near retirement. Yet, as retirement becomes far more flexible, is it something that’s still appropriate for modern workers? Read on to find out what it means and if it’s something you should consider.

Lifestyling aims to protect the pension savings you’ve built up as you near retirement age. Usually, it means changing your investment strategy to take less risk as you near the end of your working life, often between five and ten years before your selected retirement date.

This is done with the view to lock in gains and reduce the risk of your savings falling in value as retirement approaches. It can mean you’re exposed to less volatility so there’s less risk that the value of your savings will fall before you retire.

Your pension provider may automatically change which fund your savings are invested in as you approach retirement age. So, you don’t have to remember to switch your funds as retirement approaches.

In the past, retirees would use their pension savings to purchase an annuity, which would then provide a guaranteed income for life. So, reducing risk as retirees neared the milestone helped to preserve their savings.

However, Pension Freedoms legislation means that many retirees are choosing to leave their pension invested throughout retirement. So, does lifestyling still make sense?

More than £59 billion has been flexibly withdrawn from pensions since 2015

The government introduced Pension Freedoms in 2015. It means that retirees now have greater control over how they access their pensions, and taking a flexible income to suit your needs has become popular.

According to government statistics (30/11/2022), between the introduction of Pension Freedoms and the second quarter of 2022, retirees flexibly withdrew more than £59 billion.

If you choose to flexibly take an income from your pension, your savings will usually remain invested. This provides an opportunity for them to grow throughout retirement. This could be useful for ensuring your spending power is maintained as the costs of goods and services rise. However, you should keep in mind that investment returns cannot be guaranteed.

With a flexible income, you are responsible for ensuring the income you withdraw is sustainable and your savings will last for the rest of your life. As your pension could remain invested for several more decades after you reach retirement age, understanding potential investment growth and risk is important.

For some retirees that want their pension to remain invested, automatically reducing the amount of investment risk they take may not be right for them.

While you may not be ready to access your pension yet, thinking about how you’ll create an income in retirement makes sense. It can help you understand how your risk profile should change as you near the milestone with your plans in mind.

There’s no one-size-fits-all approach for managing your pension risk profile

So, does lifestyling still make sense for modern workers? There’s no single answer; it will depend on your goals, circumstances and how you’ll access your pension.

What’s important is that you make decisions that are right for you. To help you understand what your retirement plan should include ahead of time, consider the following questions:

1. When do you want to retire?

Your retirement date is important for a variety of reasons. It can help you understand if you’re saving enough and how long your savings will need to last. If you should adjust your risk profile, a timeline is also important.

If you retire earlier than anticipated, your funds could be exposed to a higher level of risk than you would expect as you approach the milestone. Similarly, if you retire later than expected, you could miss out on growth opportunities because your risk profile has been switched to “safer” fund sooner than usual.

So, make sure your pension provider has the correct retirement date if it’ll adjust your investment automatically.

2. How will you access your pension?

It’s worth thinking about how you want to access your pension when you retire. There are pros and cons whether you choose an annuity, a flexible income, or take a lump sum, so you should weigh them up and understand which is right for your retirement lifestyle.

Lifestyling works on the basis that you will crystalise your benefits on your retirement date. For example, that you will take your full pension and purchase an annuity. If you choose to take a flexible income, switching funds earlier than appropriate could mean you miss out on investment opportunities.

As a result, thinking about how you’ll access your pension is important.

You can also choose to mix the options, such as using some of your savings to purchase an annuity while accessing the rest flexibly when you need to.

3. What is your risk profile now and how will it change?

A risk profile can help you understand how much investment risk is appropriate for you. When you’re planning for retirement, it’s important to understand what your risk profile is now and how that may change depending on when you’ll retire and how you’ll access your income.

Your risk profile should consider things like other sources of income, investment time frame, and your attitude to risk. If you’re not sure what’s right for you, we can help.

Contact us to talk about your pension

If you have any questions about how to get the most out of your pension or your options for retirement, please contact us. We’ll carry out a pension review with your goals in mind. With a bespoke retirement plan in place, you can understand what decisions make sense for you. Please get in touch to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Past performance is not a reliable indicator of future performance.

The value of investments and income from them can go down. You may not get back the original amount invested.