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The investment lifecycle: Investing before retirement

When it comes to investing, everyone’s needs change over time. Investment strategies are influenced by your goals, your attitude to risk, your time horizon and your current finances, all of which are changeable, impermanent criteria. 

The final entry in our three-part investment lifecycle series focuses on investing in the run-up to retirement, those in their 50s and 60s – a key period for anyone looking for financial security in their best years. We previously looked at how people can get started with investing along with how to invest in your middle age.

So, here are our top tips for investing in the years before retirement, to put you in the best possible position to enjoy life after work. 

Take stock of your situation

By this point in your career, you may well have developed a detailed plan for retirement. Whether you want to travel the world, buy your dream car or keep investing your wealth for your children, it pays to have a plan. With your goals for life after work established, now is the time to take stock and assess how well positioned you are to meet them. 

This can mean a number of things, but broadly speaking it’s about creating a full analysis of your wealth. You may have money tied up in assets, invested in ISAs, growing in pension plans – all of these have a part to play in fleshing out a financial roadmap for retirement. You might find that, in order to hit one of your financial goals, you need to sell an asset or invest more into your ISA over the next five years – regular savings reviews are important at any age. 

So, take the time to analyse the progress of your investments and your pension pot. You might find that you need to increase your workplace pension contributions for the years before retirement to hit a particular goal, or that you are already well-placed to reach your targets. 

Consider consolidation

By this point in your career, it is likely that you’ll have a number of different investment accounts and potentially even a number of different workplace pensions – on average, a UK worker changes jobs every five years. 

The reality of many people having multiple investments means that funds are often left languishing in underperforming or expensive accounts. There is an easy remedy, however, with workers able to pull all their pensions together into a single scheme for peace of mind and ease of access. 

Schemes can vary wildly – older schemes, for example, can be expensive and inflexible when compared with more modern products. So, while consolidation can make your charges lower, it can also improve the transparency and flexibility of your retirement pot. Modern investment products will often come complete with fully functional mobile apps to make the once-arduous process of checking over your investments more straightforward than ever. 


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Review your risk profile 

Generally, those investing for the short or medium-term will want to take on more risk than those investing with a broader time horizon. This is, however, not typically the case for those approaching retirement age – ultimately, the years before retirement are focused on preserving accumulated wealth.

The years leading up to retirement are, for most people, about protecting wealth from inflation by taking a comparably low risk, conservative positioning. This way, any significant market downturn won’t derail your plans to exit the workforce within your planned timeline. 

Of course, if you have wealth spread across a number of different instruments, you could increase your risk in one of them to attempt to make up any shortfalls in your plans. It’s certainly possible to effectively grow your wealth in a higher risk portfolio, but this strategy comes with a degree of risk that many investors approaching retirement would be uncomfortable with. Ultimately, now is the time to discuss with your wealth manager or with a financial advisor to ensure that your risk level is still right for you. 

Set a target date for retirement

The prospective date for retirement is where investors can differ wildly. For some, a five-year plan for retirement begins as early as 50, where others will want to continue working into their 70s. This is a decision that varies based on myriad factors like your financial security and the specifics of your retirement goals. 

It’s important, then, that investors have the age they’d like to retire in mind when making plans for investing later in their careers. With the date set, you can focus on clearing any remaining debt, organising your assets and ensuring you have the liquidity to do the things you want to do after you finish work. 

You’ll want to weigh up the effect your retirement date has on the prospective length of the retirement itself. Those saving for a retirement that lasts for 40 years will have different financial goals to those putting away money for 20 years, for example. Even the difference of a few years will affect your plans – set a target date and plan your investments around it. 

Have your portfolios reviewed

If you’re noticing a general theme to this guide, it’s that now is the time to make sure all of your investments are fully optimised. Having a more defined picture of what your ideal retirement will look like means understanding what you’ll actually need and when. 

Particularly for those with multiple investment accounts, getting an overview from a professional can help put your finances into perspective. A full review will break down where your money is allocated, the risk profile you’re currently taking on, your projected returns and your liquidity. 

At Moneyfarm, we offer our clients a free portfolio review service with no obligation. Our investors provide us with some basic information about their accounts and we perform a full diagnostics report on how their investments are performing and where they could potentially be better served.

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