Market uncertainty is a normal part of investing. For retirees, however, market movements can feel more confronting because income is being drawn at the same time.
Protecting pension income is not about avoiding markets altogether. It is about managing risk carefully, particularly during the years when retirement income begins.
A structured and diversified approach can help retirees continue drawing income while navigating periods of volatility with greater confidence.
Why does market uncertainty matter more in retirement?
During working life, market downturns can often be ignored because income comes from employment and investments have time to recover.
In retirement, the situation changes.
Retirees face two key risks:
- A market downturn just before retirement
- A market downturn in the early years after retirement
When withdrawals are taken during market declines, losses can be amplified. This effect is known as sequencing risk and it can permanently reduce the income a portfolio is able to support.
Managing exposure to this risk is one of the most important aspects of retirement investing.
Understanding sequencing risk
Sequencing risk refers to the order in which investment returns occur.
Two retirees with the same long term average returns can experience very different outcomes depending on when losses happen. Losses early in retirement can be more damaging than losses later, because income is being withdrawn from a reduced balance.
This makes the early years of retirement particularly sensitive and highlights the importance of defensive positioning during this period.
What is the bond tent concept?
Research into retirement outcomes from the Conexus Institute (2024) and the Actuaries Institute (2025) shows that even moderate volatility can accelerate capital depletion when withdrawals are constant.
Increasing defensive assets around the start of retirement can help cushion early drawdowns. This approach is often referred to as a bond tent.
A bond tent involves:
- Increasing exposure to defensive assets as retirement approaches
- Gradually reintroducing growth assets later in retirement
The goal is to protect income during the most vulnerable years without sacrificing long term sustainability.
This approach recognises that risk capacity changes over time, especially when income withdrawals begin.
How can defensive assets support income stability?
Defensive assets such as bonds, cash and gold tend to behave differently from shares during periods of market stress.
While they do not eliminate volatility, they can help reduce its impact.
Defensive assets are used to:
- Reduce portfolio volatility
- Provide liquidity for income payments
- Help avoid the need to sell growth assets during market downturns
By combining defensive and growth assets, pension portfolios aim to remain resilient across a range of market conditions.
Balancing growth and defence in retirement portfolios
Completely avoiding growth assets can create another risk in retirement. Without growth, portfolios may struggle to keep pace with inflation over long periods.
A balanced approach aims to include:
- Enough growth to support purchasing power
- Enough defence to manage short term volatility
At Stockspot, we believe that a 40%growth and 60%defensive mix is often used during the early retirement years to strike this balance.
This structure seeks to protect capital when income withdrawals matter most, while still supporting long term income needs.
What is the role of automatic rebalancing in retirement portfolios?
Over time, market movements can shift a portfolio away from its intended balance.
For example, strong share market performance can increase risk exposure, while market falls can reduce growth exposure.
Automatic rebalancing helps address this by adjusting portfolios back to their target mix. This process is rules based and does not rely on market timing or emotional decision making.
Rebalancing supports consistency and helps ensure the portfolio continues to align with its original risk settings.
Why does investment transparency matter during market volatility?
Transparency can play an important role in helping retirees stay invested during uncertain markets.
Being able to see:
- Each investment held
- How different assets are performing
- How the portfolio responds to market movements
Transparency over investments can provide reassurance and reduce the temptation to make reactive changes during downturns.
Clear visibility supports informed decision making and long term discipline.
The importance of staying focused on long term retirement goals
Many retirements last 25 years or more. Short term market movements are only a small part of that journey.
A steady, diversified and rules based investment approach helps retirees remain focused on long term goals rather than short term headlines.
By managing risk systematically and maintaining a clear balance between growth and defence, pension portfolios are better positioned to support income through different market environments.
Pension portfolios need to protect income without abandoning markets.
Protecting pension income does not mean avoiding markets or holding everything in cash. It means recognising how risk changes in retirement and structuring portfolios accordingly.
Diversification, defensive assets and a clear investment framework help retirees continue drawing income while navigating uncertainty with confidence.
