When people retire, many instinctively want to reduce risk and play safe by moving their savings into cash or very conservative investments.
While this may feel safer, relying too heavily on cash can create a different and less visible risk over time. Without some exposure to growth assets, retirement income can struggle to keep pace with inflation and rising living costs.
A well-structured pension portfolio is designed not just to reduce volatility, but also to support income over what could be a retirement lasting 25 years or more.
The myth of playing it safe in retirement
It is common to associate retirement with avoiding risk altogether. Moving entirely to cash or term deposits can feel like a sensible way to protect savings.
However, cash comes with its own risks in retirement. Interest rates may not keep up with inflation, and returns can vary significantly over long periods.
When income is drawn from a portfolio that is not growing, purchasing power can gradually decline. This means that while the account balance may look stable, what that money can actually buy may reduce year after year.
How inflation affects retirement income
Inflation represents the gradual increase in the cost of goods and services over time. Even at modest levels, inflation can have a significant impact over a long retirement.
For example, if inflation averages only 2 to 3 percent per year, living costs can double over roughly 25 to 30 years.
In retirement, this creates a challenge. Income needs often rise over time due to health costs, utilities, insurance and everyday expenses. A portfolio that does not include growth assets may struggle to support these increasing costs.
This is why growth plays an important role even after work has ended.
How do growth assets help build portfolio sustainability in retirement
Growth assets such as shares are included in retirement portfolios not to maximise short term returns, but to support long term income sustainability and inflation protection.
Over long periods, growth assets have historically delivered higher returns than cash, although they also experience greater short term volatility.
In a pension portfolio, growth assets help to:
- Offset the impact of inflation
- Support income withdrawals over time
- Reduce the risk of running out of money later in retirement
The goal is not aggressive growth, but sufficient growth to maintain purchasing power.
Balancing stability and growth in retirement portfolios
A retirement portfolio does not rely on growth assets alone. Instead, it typically combines different asset types to manage risk.
We believe retirement portfolios should include a mix of shares for long term growth, bonds to provide stability and income plus assets like gold that may behave differently during market stress.
This mix is designed to smooth returns while still allowing the portfolio to grow over time.
Diversification helps ensure that no single asset class dominates outcomes, particularly during periods of market volatility.
Historical lessons
Looking at long term market data provides useful context for retirement investing.
Over decades, diversified portfolios that include growth assets have generally outperformed cash and term deposits after inflation. While short term losses occur, longer investment horizons have historically rewarded patience and diversification.
By contrast, portfolios invested entirely in cash may experience fewer short term fluctuations, but often fail to deliver sufficient real returns once inflation is considered.
These historical patterns highlight why growth remains relevant even later in life.
Managing volatility does not mean avoiding growth
Volatility is an unavoidable part of investing, including in retirement. The key is managing it appropriately rather than trying to eliminate it altogether.
This is done through:
- Diversification across asset classes and regions
- A meaningful allocation to defensive assets
- Ongoing monitoring and portfolio adjustments
Managing volatility helps support regular income payments without forcing reactive decisions during market downturns.
The role of automatic portfolio management
In retirement, managing a portfolio manually can become complex, especially when income withdrawals, market movements and regulatory requirements are involved.
Automatic portfolio management helps ensure that the balance between growth and stability is maintained over time.
As markets move, portfolios can drift away from their intended risk level. Regular rebalancing helps bring them back into alignment, maintaining the role of growth assets without increasing risk beyond what was originally intended.
Growth and confidence in retirement planning
Understanding why growth remains part of a pension portfolio can help retirees feel more confident during periods of market uncertainty.
Rather than viewing growth assets as unnecessary risk, they can be seen as a tool for protecting income over the long term.
Growth is not about chasing returns. It is about ensuring that retirement income remains resilient in the face of inflation, longevity and changing costs.
How growth supports income over the long run
How growth supports income over the long run
A portfolio that balances growth with stability is better positioned to support income not just today, but throughout retirement.
By including growth assets alongside defensive investments, pension portfolios aim to provide a smoother and more sustainable income experience over time.
