Pension Fund Investment Strategy - Reducing risk when approaching retirement age

L

LiferT

Registered User
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Hi

I wonder if I can get your views on the level of risk that I should accept for my pension fund as I approach retirement.

Currently my main occupational pension is invested in a medium risk growth fund (Risk level 4 out of 7). I intend to retire in 7 years and use the pension fund to procure an ARF / AMRF.

As I do not intend to buy an annuity at the age of 65, is there any point in reducing risk or choosing a 'life styling' approach, as I intend to stay invested and require a certain amount of risk to top up my pension fund after each annual withdrawal (4% per year) from the fund?

Your views will be greatly appreciated.

Thanks in advance.

LT
 
This is typical of the challenge facing D.C. members.
Theoretically reducing risk as your approach makes sense, particularly if you are going to invest the residual fund (after taking the tax free lump sum) into an Annuity. The logic is that you want to limit downside risk approaching retirement.
However if you are going to invest the residual fund into an ARF, then you need to consider what risk profile you might adopt in the ARF. So if you are going to adopt Risk Level 4 in the ARF, it makes little sense to reduce the risk profile running into retirement (other than perhaps trying to secure the 25% lump sum).
So my advice is to look through retirement to how you will invest the 75% and adopt that strategy in the run-in to retirement.
 
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