Increasing Risk to Combat Inflation?

Jan 30, 2024 | Advice, Pensions, Retirement

When it comes to saving for retirement, one of the biggest concerns is making sure your money keeps up with the rising cost of living.  Retirement planning is a complex process that takes into account various factors, one of the most critical being the impact of inflation on a retiree’s savings.

The global economy has witnessed inflation rates that have disrupted retirement plans for many. Consequently, individuals have found themselves having to postpone their retirement because their carefully planned pension funds are unable to sustain the increased drawdowns required to cope with the rising cost of living.

So, the question many face is whether they should increase their investment risk to combat inflation.

Assessing the Risks

Consider one key approach to extending the longevity of pension funds: assessing the risk tolerance over the long term.

Increasing the level of investment risk within a portfolio can potentially allow retirees to make their pension last longer. However, it’s important to emphasize that this strategy requires careful consideration, as increasing risk can also introduce the potential for greater losses.

The Importance of Timing

For those who are not approaching retirement in the near future, adjusting the risk profile within their pension investments may yield more favorable outcomes.

Nevertheless, whether retirement is still a distant prospect or looming just around the corner, it is advised that a comprehensive review of one’s pension strategy be conducted at least annually. Regular reviews ensure that retirement plans remain aligned with financial goals and that adjustments can be made as needed.

Seeking Inflation-Beating Assets

Another crucial aspect of managing pension investments is to focus on acquiring assets that consistently outperform expected inflation rates over the long term. Rather than frequently changing the composition of one’s investment portfolio, it’s advisable to identify and invest in assets explicitly designed to protect against unexpected inflation. For instance, index-linked bonds can provide a level of security in times of rising prices but can also cause significant losses if getting in at the wrong time if you aren’t looking to hold until maturity.

De-risking vs. Sustaining Growth

Traditionally, individuals nearing retirement would gradually decrease the level of investment risk in their portfolios. However, with the introduction of pension freedoms, retirees now have more options to consider. While some may opt for de-risking, i.e., reducing their exposure to higher-risk investments as they approach retirement, maintaining a consistent level of investment risk could be crucial for generating long-term growth. This growth is essential for ensuring that desired income levels remain sustainable throughout retirement.

The Three-Bucket Approach

A retirement investment specialist suggests a three-bucket strategy, which involves segmenting investments into short-term, medium-term, and long-term categories. This strategy helps retirees manage risk effectively by ensuring that funds are readily available for immediate needs while also maintaining a portion of the portfolio for future requirements.

Inflation as a Temporary Challenge

A research expert highlights that inflation may primarily be a short-term challenge. Projections indicate that inflation rates are expected to decrease over time. This means that while investors should remain cautious, they need not drastically alter their long-term investment strategies in response to short-term fluctuations in inflation unless the outlook changes dramatically.

Investing in the Face of Inflation

For individuals who are more than five years away from retirement, a longer investment horizon presents opportunities. However, given the concerns about inflation, should they consider allocating more of their portfolio to riskier assets in pursuit of higher returns?


Inflation poses a significant challenge for pension savers, and addressing it requires careful planning and consideration. While increasing investment risk can potentially help extend the life of a pension, it’s essential to recognize that there is no one-size-fits-all solution. The decision to take on more risk should be based on a thorough assessment of individual circumstances, investment time horizons, and risk tolerance. Ultimately, diversification and a well-considered investment strategy remain pivotal tools for navigating the complexities of retirement planning, particularly in an environment marked by inflationary pressures.

This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Schedule an Obligation-free Call With an Adviser

By scheduling an appointment with an adviser they will reach out to you at your requested time. 
Personal advice, whenever it suits you.

Schedule an Obligation-free Call With an Adviser

By scheduling an appointment with an adviser they will reach out to you at your requested time. 
Personal advice, whenever it suits you.

SJB Global