The final few years before retirement can make the difference between living lean and enjoying the lifestyle you are accustomed to.

Over a 40-50 year career, those final 4-5 years represent 10% of your opportunity to add to your pension pot. If you didn’t start your pension until your late 30s to early 40s, that figure could be closer to 20%.

At the same time, you already have saved the major portion of what your final pension will be – giving you the maximum investing power when looking to add those last substantial gains to your life savings.

But there are hazards to be cautious about too. Invest heavily in the stock markets, and your pension could lose significant value in the event of an economic shock.

You may have already experienced similar in your life, if you were affected by the endowment mortgage incident, or if you had substantial stock market exposure during the slump of 2007-08 and the recession that followed.

So it’s important to take care to protect your pension pot during the final few years before you retire, as if it loses 20% or more of its value at that point, you might not have a full decade to wait for the markets to recover.

Flip your point of view


Only you can decide when this inflexion point occurs – the moment at which you stop being a regular investor and become a retiring investor instead.

At that moment, volatile markets stop offering you opportunities and start to become more of an obstacle to making consistent and risk-averse gains.

The financial services industry has worked heavily over the past decade to improve its prudence, but it’s still impossible to know when the next market downturn will occur, especially in an era of political turbulence worldwide.

It might go against everything you have believed in as an investor in the past – especially if those techniques have built substantial savings for you over 30-40 years – but it’s important to shift the balance away from fast and big returns and towards a more conservative approach.

Effective risk management is a hallmark of good investing, so in that sense, nothing has changed. It’s just time to admit that your personal ability to absorb risk and volatility is not as great as it used to be.

Set your own priorities

What do you actually want from your pension? How much do you need to live a comfortable lifestyle – taking into account whether you now live mortgage-free and have independently wealthy children, and so on?

In the very final few years of your working life before retirement, a lot of those big expenses start to fall away, so it’s good to set multiple fixed goals for a lean, comfortable or affluent retirement, and resist the urge to simply aim for ‘as much as possible’.

Remember to factor in inflation. Once you retire, you may need to keep some of your savings in inflation-beating investments to continue to meet and beat the cost of living.

Decide how much you’ll need to keep invested and how much you’ll be looking to draw out each year. As a lifelong investor, you’re probably well capable of making these calculations, but you could always speak to a financial advisor who specialises in retirement planning too.

Once you know what you need from your retirement investments, you can adjust your portfolio accordingly. This is a period in your life when it’s time to turn away from the big hype stories and look towards the steady, reliable performers over the long term.

Take inspiration from Warren Buffett. The investor and philanthropist is worth about $1 billion for each of his 90 years, and a lot of that value was built by holding on to consistently performing stocks while ignoring unfamiliar technologies like the 1990s dotcom bubble.

Factor in fees

One benefit of taking a long-term approach to which stocks you hold is the lower amount of fees you’ll face if you make fewer transactions.

Sometimes it’s inevitable that you’ll need to liquidate some stocks or buy into an opportunity that fits your goals and your risk profile.

If the risk-reward is borderline, don’t forget to include any fees in your calculations. When it comes time to cash in that investment, they might mean the difference between whether or not you make enough of a profit for it to be worthwhile.

You might want to set another target. On top of those fixed-sum targets you want to reach before you retire, give yourself a percentage for during-retirement growth that you think will outpace inflation without exposing you to too much risk.

For example, you might adopt a fairly conservative target of 4-5% growth after all fees and any disposable income you withdraw from your retirement savings.

In boom times it may be quite easy to meet and even exceed that goal, but in a down economy, you need to be ready to limit your exposure, adopt sensible hedging strategies, and dial down your quality of life a little if required.

Bound by bonds

One perennially popular investment option for managed pension funds is bonds that offer a near-guaranteed return.

These are among the most reliable assets on the market, especially when backed by governments, but in recent years their value has suffered due to the captive market that pension funds themselves represent.

With many funds committed to buying bonds no matter how poor the returns, some have dipped into negative territory, yet managed pensions continue to buy in.

If you’re managing your own pension pot, pay extra attention to the real-terms value offered by bonds. Despite being the first choice for many of the big funds, they are probably not currently the best proposition for individual retirement investors.

Where are the safe havens?

If bonds are not the prospect they used to be, then where can you place your funds as a retirement hedging strategy?

Gold is the obvious ‘store of value’ asset at any stage in your investment career, and it can still form a key component of a pension portfolio too.

Always be aware of the current value of gold, its recent performance, and any likely immediate future change, but as 10-15% of a portfolio, it typically brings in positive value growth and helps to smooth out any bumps in the road from other asset classes.

ETFs have become increasingly popular in recent years, and they make good sense for pension investors, as they spread your investment across an entire market, economy or index, while minimising transaction fees.

Look for consistently good performers and make sure you’re aware of the underlying assets the fund is based on, so you can take preventative measures if you become aware of emerging turbulence in that economy or sector.

There are no true safe havens in investing, but by spreading your resources via portfolio diversification and hedging strategies, you can help to insulate yourself against shocks.

Help, not hope

Finally, don’t be afraid to get help. That might mean consulting a financial advisor with a strong pension planning focus as mentioned above, but it could equally involve talking about your investments with friends who are at a similar stage in their career.

Remember to resist overhyped ‘opportunities’ and be on the lookout for scams, but be open to genuine tips from other experienced investors who have spotted an emerging trend in a growing market.

There’s nothing wrong with making quick gains – just because you’re nearing retirement, it doesn’t mean you can’t still enjoy some of the thrills that comes from making a great investment decision.

Just remember to balance that against the level of risk you can afford at this stage in your life, so if it goes wrong, you’re still left with the lion’s share of your pension portfolio so you can continue to enjoy the quality of life you are accustomed to.

Don’t make large investments based on a whim or in the hope that a falling market will turn around in the near future.

Anyone who has been investing throughout the 2000s knows that political and economic shocks take time to recover from.

Don’t gamble your comfortable retirement on a waiting game, when you can instead spread your finances across multiple smaller investments (while taking transaction and management fees into account) and make incremental gains that top off your pension pot by that crucial last 10-20% before you retire.


Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.