Where financial planning comes in
Lifestyling can still make sense if it is very likely that clients are going to buy an annuity at retirement, but I do not think it is the default any more. That is where it all comes back to understanding risk and, of course, good financial planning.
A good financial adviser can help people maximise both their financial security and flexibility on the way towards and into retirement. If that means using some level of old-school lifestyling on the way to an annuity purchase, then that can still work perfectly well if planned in the correct manner.
However, if the financial plan is to enter drawdown at retirement then derisking the portfolio and shifting to bonds is not likely to be the best way forward from an investment perspective. In this instance retirement simply becomes the inflection point of accumulation and decumulation.
But that does not necessarily mean it should be the inflection point for equities and bonds in the portfolio too.
As people are likely to live further into retirement, longevity risk increases and adds another consideration into the mix.
Bill Bryson tells us: “Physics is really nothing more than a search for ultimate simplicity, but so far all we have is a kind of elegant messiness.”
Investments are much the same. It is certainly not as simple as blindly derisking into retirement anymore – we have to construct portfolios, and financial advisers create plans with as much elegant messiness as possible.
Only with the correct risk levers being pulled, and a well-constructed financial plan, can clients enjoy the comfort of knowing they can maintain their lifestyle into retirement.
Nic Spicer is head of UK investments at PortfolioMetrix
