How to choose the right retirement investment options

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Your pension plan stays invested even when you start taking money from it. So choosing how you’re invested when you retire is a big decision, and it’s one that can really impact how long your money will last. Here we explain what you need to think about to help you make the right investment choices for you.

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If you’re in a pension plan where you aim to build up a pot of money (it’s usually called a defined contribution pension), your options may include taking a flexible income. You may also see this called drawdown. 

If you choose to do this, your remaining money stays invested. And how it’s invested can make a big difference to the kind of lifestyle you’ll have once you’ve retired and how long it lasts.

And bear in mind that we’re generally living longer these days, potentially an extra 20-30 years of life after work, so it might need to last longer than you think.

It’s a good idea to take some time to really think about what your investment options are and how they could help support the kind of retirement you want. Like many people, you may feel like you don't know where to start when faced with this choice. That's why we've tried to make the decision-making process a little bit simpler for you.

There are two really important questions you need to ask yourself:

1. How long do you need your money to last?
2. How involved do you want to be in managing your investments?

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1. How long do you need your money to last?

The longer you’re hoping for your money to last, and the amount you need to regularly take from your pot to give yourself a suitable income, can all affect how much you might need to rely on your investments to potentially grow. 

So the answer to this question ultimately affects the amount of risk you want to take with your investments, and the amount that you’re able to potentially lose and still provide yourself with enough to live on comfortably. 

If your investments fall while you’re taking an income from your plan, the amount you withdraw becomes a larger proportion of your overall pot. Think about it like taking the same size slice out of a smaller pie. Once you’ve taken it out, you’ll have less money invested to recover losses if and when markets (and your investments) rise again. And this might affect how long your money lasts. So it’s important your pension savings are prepared for the unexpected.

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It can help to think about when you plan to take your money

• I plan on taking it all within the next five years 

If this is the case, you might want to think about taking less risk with your investments. That’s because your goal may not be to grow your money over the long term anymore, so it shouldn't be necessary to invest in risky types of investments that could shift up and down significantly when investment markets are moving.

• I plan to start taking some of my money within the next five years

You might be looking to start taking your money as retirement income – a bit like paying yourself a salary in retirement. So if you need your money to last over a longer period then consider taking a little more risk with your investments. That will give your money the opportunity to grow in value and hopefully last as long as you need it to. Just make sure you’ll still have enough to provide you with the income you want if your investments fall slightly.

• I don’t plan to take any of my money in the next five years

If you don’t plan on accessing any of your pension money within the next five years, then you could potentially think about taking more risk with your investments. This could mean you have more when you come to take your pension money. But, the more risk you take with your investments when you aim to make your money go up in value, the greater chance there is that you could lose a lot or even all your money if markets fall.

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2. How involved do you want to be in managing your investments?

• I want an expert to do it for me

Managing your own investments requires a lot of knowledge, decision-making and time. Most of us aren’t investment experts, or just don’t have the time to dedicate to it, so sometimes it can be better to leave it to the professionals.

If this is what you'd prefer, there are investment options available where you can delegate the decision-making and let experts manage your investments on your behalf.

When it comes to your Standard Life pension plan, we have some ready-made options available for you to choose from. In particular, our Investment Pathways are driven by an initiative from the Financial Conduct Authority to make it easier for you, particularly if you’re not receiving a personal recommendation, to choose how to invest in a way that helps you get the retirement you want. We offer you a range of investment options based on the four most common ways people choose to take their pension money. Simply choose the option that best applies to your circumstances, and the experts will do the rest.

• I want to do it myself

If you want to be in control and know how you want to invest, you can choose your own funds. If you take this approach, you should make sure you have the time to really commit. You’ll need to regularly review how your investments are doing, research options and, if necessary, move your money around. 

If you’re a DIYer and want to take a look at options for your Standard Life pension plan, we have all the information you need about the funds we offer online, including performance, charges and factsheets.

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What's next?

Whatever you decide to do, it’s important to regularly check your investments to make sure they stay on track to meet your goals. If you already have a pension plan with Standard Life, you can check your investments and make changes to them by registering for online servicing. And if you’re already registered, why not download our app and review your investments on the go?

If you’d like more information about investing, take a look at our investment guides. Or, for general guidance about making the most of your pension savings for your retirement, we have plenty of information and tools available online. 

This article should not be regarded as financial advice. The information here is based on our understanding in October 2021.

The value of investments can go down as well as up and may be worth less than you paid in.

If you’re looking for help with any of these questions it would be worth speaking to a financial adviser. There is likely to be a charge for this.