A big part of planning for retirement is figuring out how much risk your investments should carry — and when.

Too much risk too close to retirement could mean you lose money when you need it; but too little risk in the long term may erode your ability to outpace inflation and grow your savings.

The trick is not to derisk your whole portfolio all at once, unless you plan to buy an annuity. Instead, derisk what you’ll need in the next few years, and let more distant savings remain invested for growth. Let’s walk through how to structure that.

Why de-risking everything can be counterproductive

• If all your savings are moved into safer assets (bonds, cash, lower-volatility investments) too early, you often lose out on returns that equities or growth assets tend to provide over long periods. That means inflation, fees, and opportunity cost can eat more away from your pot than volatility might if you stayed invested.
• UK pension “lifestyling” or default fund approaches often shift large portions of assets into bonds/cash as retirement nears. This protects from sharp losses, especially if you plan to buy an annuity. But if you’re using drawdown or expect to keep part of your money invested for many more years, moving too aggressively into “safe” assets can leave you with insufficient growth over retirement, leaving you vulnerable to inflation or longevity risk.

What matters most is timing: separating “near-term” vs “longer-term” money

To put this into practice, think of your retirement savings in two (or more) “buckets”:

Bucket	Purpose	Time horizon	Suitable risk level / asset mix
Near-term / income & spending	Money you’ll withdraw in the next 2-5 years to cover expected expenses (e.g. first few years of retirement, large planned purchases, etc.)	Short term (0-5 yrs)	Low risk: cash, short-term bonds, other stable fixed income ‒ aim to protect principal, avoid volatility.
Medium-term	Funds needed 5-10 years ahead (e.g. health costs, travel, big life events)	5-10 yrs	Moderate risk: mixture of bonds, some equities, perhaps inflation-linked assets. Some growth needed but with increasing stability.
Long-term / legacy & growth	Money you don’t expect to touch until many years into retirement, or as a legacy / contingency buffer	10+ years	Higher risk: ensure exposure to equities or other growth assets to outpace inflation, benefit from compounding.

This split allows you to protect what you need soon, while keeping what you don’t need yet working harder for you.

What the UK evidence & practice suggests

Some recent UK data and expert commentary support this bucket-oriented or staged approach:

• A guide from Hargreaves Lansdown notes that many default pension funds use “lifestyling” strategies, shifting from larger share (equity) exposure when someone is far from retirement, to more bonds / cash as they approach.
• But these same sources warn that rigid de-risking schemes can misfire, especially in volatile bond markets, or when interest rates change. They suggest that those who plan to use drawdown rather than buying an annuity may benefit from keeping more growth exposure (equities etc.) in the medium/long term.
• The “How to prepare your investment portfolio for retirement” piece from Boring Money advises aligning your investments with your retirement income strategy — which implies thinking carefully about what part of your savings will produce income soon, and what part needs longer growth.

Sample Asset Allocation Paths by Stage/Goal

Here are example allocations to illustrate how you might shift over time using this bucketed mindset (for someone not buying a full annuity, planning flexible drawdown):

Stage	Years until retirement / recently retired	% in equities (growth)	% in bonds/fixed income	% in cash or ultra-low risk
10+ years out	10-12 yrs before retirement	~ 70-80%	~ 20-30%	~ 0-5%
5 years out	5 yrs before	~ 50-60%	~ 35-45%	~ 5-10%
At retirement + 2-3 years (need income, guard against sequencing risk)	0-3 yrs	~ 30-40%	~ 50-60%	~ 10-20%
Mid retirement (after “near-term” buckets used)	3-10 yrs in	~ 50-60% (growth assets)	~ 35-45%	~ 5-10%

These are illustrative; your own preferences, risk tolerance, health, and other income sources should all adjust where you sit. But the key is: you never need to move everything into safe assets unless your strategy calls for guaranteed income (e.g. full annuity) and you want to avoid risk entirely.

Risks & Trade-offs to watch out for

• Sequencing risk: The danger of drawing income at a time when the market is down. Losing value just before or early in retirement can hurt long-term sustainability. That argues for derisking the “near-term bucket” so you have cash / bonds to draw from when markets are rough.
• Inflation risk: Safer assets often underperform inflation over long periods. If too much of your money is in low return assets, your purchasing power erodes.
• Interest rate changes / bond risk: Bonds aren’t risk-free. Rising rates or falling ones can affect bond values (especially long-term bonds), so even defensive parts need to be chosen carefully.
• Cost & fees: Switching investments, holding certain funds, or frequent rebalancing can incur costs. These eat into returns, especially in lower-risk assets where margins are smaller.
• Behavioral risk: If you’re too conservative, you might underinvest and later regret missing out. If too aggressive, you might panic in downturns. Key is balance and clear plan.

Specific Action Points

Here are concrete steps you can take right now to set up a strategy based on this derisk-just-what-you’ll-need approach:

1. Calculate your timeline of spending needs.
   • Estimate what expenses you’ll have in years 0-3 after retirement, years 3-7, and beyond.
   • Identify what you’ll likely need from your pension / investments in those periods.
2. Define your buckets.
   • Based on the above, split your retirement pot into near-term, medium-term, long-term buckets.
   • Assign rough sizes (% of total pot) to each. Example: maybe 15-25% near-term, 25-35% medium-term, remainder long-term.
3. Choose appropriate allocations for each bucket.
   • Near-term: low risk (cash, short-term bonds) to preserve capital.
   • Medium: mix bonds + equities.
   • Long: heavier on equities / growth assets, diversified globally, inflation-hedged where possible.
4. Plan for sequencing risk.
   • Make sure your near-term bucket is sufficient to cover withdrawals for first few years so you don’t have to sell growth assets in a down market.
   • Consider keeping emergency / buffer cash aside.
5. Decide if/when to buy an annuity for part of your income.
   • If you want guaranteed income for a chunk of your retirement, that part of the portfolio should be shifted into safer assets ahead of time (to lock in rates, protect principal).
   • But you don’t need to derisk the other buckets for that.
6. Review and rebalance periodically.
   • Once a year or semi-annually, check that each bucket still matches your assumptions: spending needs, market outlook, risk.
   • Move money from growth bucket into safer buckets gradually as you draw or as buckets “age”.
7. Stress-test your plan.
   • Model what happens if markets fall just before and after you retire.
   • See whether retirement income still holds up. Adjust bucket sizes or allocations accordingly.
8. Seek professional advice as needed.
   • Especially for large portfolios, annuity decisions, or if you feel unsure about risk tolerance or planning.
   • Use tools or calculators that allow you to simulate different allocation paths over time.

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Final Thought

The optimal investment strategy isn’t static — it changes as you approach retirement and then through retirement. The best way is to protect what you need soon while allowing the rest of your wealth to keep working for you.

That way, you balance security and growth, reduce risk where it’s painful, but don’t give up potential upside too early.