It’s only natural, once you retire, to want your pension savings to be ‘safe’. This is especially true if you have a defined contribution pension – rather than a ‘final salary’ one that pays a regular income. In such circumstances, you’re probably faced with a large pot of money. And it’s up to you to decide what to do with it.

It’s also up to you how to invest it.

That’s quite a responsibility, given the money is there to help pay for your living expenses – and all the more so when markets are weak and the economic outlook appears shaky. It may even be all you have to rely on if you’ve retired early and are not yet eligible to receive a state pension1.

Retiring in a downturn is far from ideal and it may mean having to adjust to ensure your retirement savings go further. A recent article by our colleague Zoe Dagless offered 10 tips for weathering the storm.

However, protecting your short-term financial interests should not be at the expense of your longer-term interests, because if you want to maximise the life of your pension, you still need some capital growth. This means continuing to take some investment risk with your money, which means investing some of it in shares.

It’s one thing withdrawing a chunk of money from your pension to pay for a few months’ or even a year’s budgeted expenses, say, and sheltering that money in a savings account or money market fund until needed. It is quite another to seek the safety of cash with your entire pension pot.

Do that and the future spending power of your retirement savings will likely be diminished due to the corrosive effects of inflation – which is important when you consider how long you might live.

Life expectancy at birth in the UK is 79 years for men and almost 83 years for women. But if you’ve already reached 65, it’s more like 83.5 and 86 years, respectively2. There were also 609,503 people aged 90 or above in mid-2020 and 15,120 centenarians3.

In our experience, many people underestimate their longevity.

Helping your pension to last longer

So bereft of capital growth, your pension pot might empty sooner than you’d hoped or need, and sooner than might otherwise have been the case if you’d left the money invested until required.

To illustrate that, consider the five hypothetical scenarios shown below of a £200,000 pot drawn down to zero over time through regular annual withdrawals adjusted for inflation. Each projected scenario in the chart makes different assumptions about inflation and the amount of money withdrawn. To account for the fact that markets go down as well as up, different estimates of market volatility are incorporated and run through 10,000 possible simulations, with the average outcome picked in each case.

The two solid lines show our base-case scenarios. The red line represents a pot earning no return. And as you can see, it lasts just 20 years as £8,000 – increased each year by 2% in keeping with our long-term inflation projections – is withdrawn annually. The solid green line, in contrast, shows the same pot lasting 35 years because the money is assumed to be invested earning an average 4% return.

The three other scenarios, denoted with dotted lines, are variations on the same theme. Although 4% capital growth is again assumed, one of the other underlying assumptions is tweaked. So what we see in each case is how a modest investment return can help make your pension go further even when a larger initial amount of £10,000 is withdrawn (green line), when average annual inflation of 4% is factored in (grey) or markets are assumed to be more volatile (orange)4.

In each case, the retirement pot still lasts longer compared with when it is not invested.

How a £200,000 retirement portfolio might depreciate under different scenarios

Forecasts are not a reliable indicator of future results.

Source: Vanguard calculations.
Notes: The projected drawdown pathways generated are hypothetical in nature and represent the average out of 10,000 possible scenarios. Actual outcomes may differ.

Bonds versus shares later in life

It’s not just about the amount of cash retired investors should hold and how much they should have invested – but about the relative amount of bonds and shares they should consider investing in. You want some capital growth but you also want some protection.

Historically less risky and less profitable than shares over the long-term, but potentially more profitable and riskier than cash5, bonds have an increasingly important role to play in an investment portfolio the more you age and the closer you are to stopping work – and more so once you retire.

It’s a line of reasoning reflected in Vanguard’s range of Target Retirement Funds (TRFs) – our low-cost one-pot recipes for successful retirement investing. Whatever your age, we have a TRF for you – one that automatically adjusts the balance of global bonds and shares in your portfolio over time, depending on when you want to retire.

The chart below illustrates the glide path these funds follow. And as you can see, more bond investments are introduced over time to balance the portfolio’s ability to grow with its ability to withstand sudden stock market downturns. So much so, that by the time they reach retirement, half the portfolio is in shares and half is in bonds

Glide paths for Vanguard’s Target Retirement Funds 

Notes: Figure assumes that a particular fund was selected based on a projected target retirement age of 68. Source: Vanguard.

(For more on the interplay between a person’s age, their future earnings potential and investment risk, read ‘Why a target-date fund could be the only fund your pension ever needs’).

Stay diversified throughout

Being retired doesn’t necessarily mean you should just invest in bonds, though. After all, you could be retired a long time, especially if you take advantage of pension freedoms and begin leaning on your pension investments from as early on as your 55th birthday (rising to 57 in April 2028).

So you need that money to last and to protect your spending power over decades, which ideally means generating some above-inflation capital growth. This is where shares come in, given their strong track-record of inflation-beating long-term returns, and is why investors should consider staying diversified throughout their investment lifetimes by continuing to invest in shares, at least to some degree.

In the case of our TRFs, up to 30% of the portfolio is still made up of shares to help offset the risk of investors outliving their means long after they’ve retired, with the remainder invested in bonds, to help preserve capital.

It’s not the only possible approach to drawing down your pension pot but it’s one underpinned by our rigorous research6 and adapted for the UK market. We hope it provides the self-directed retired investor with a useful frame of reference, but if unsure speak to a financial adviser.


1 Since April 2015, it has been possible for people in the UK to access their defined contribution pensions from as early on as aged 55 (rising to 57 in 2028). Eligibility for the state pension, though, doesn’t kick in until aged 66-68, depending on when you were born.

2 National life tables – life expectancy in the UK: 2018 to 2020, Office for National Statistics, September 2021.

3 Estimates of the very old, including centenarians, UK: 2002 to 2020, Office for National Statistics, September 2021 

4 In three cases, 5% volatility is assumed in line with the long-term projections of the Vanguard Capital Markets Model (VCCM) for a global 20%/80% shares/bonds portfolio. In the more extreme case, 9% volatility is assumed.

IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations as of 31 May 2022. Results from the model may vary with each use and over time. For more information, please see the ‘Investment risk information’ section below.

5 Donaldson, Scott J., CFA, CFP®; Harshdeep Ahluwalia; Giulio Renzi-Ricci; Victor Zhu, CFA, CAIA; Alexander Aleksandrovich, CF, ‘Vanguard’s framework for constructing globally diversified portfolios’, Vanguard Research, June 2021.

6 Daga, Ankul, CFA; Todd Schlanger CFA; Scott Donaldson CFP, CFA; Peter Westaway PhD, ‘Vanguard’s approach to target retirement funds in the UK’, Vanguard Research, February 2016.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55.

Investments in smaller companies may be more volatile than investments in well-established blue-chip companies.

Some funds invest in emerging markets which can be more volatile than more established markets. As a result, the value of your investment may rise or fall.

The Vanguard Target Retirement Funds may invest in Exchange Traded Fund (ETF) shares. ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.

Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities.

Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.

The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.

For further information on risks please see the “Risk Factors” section of the prospectus on our website at

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of units/shares, and the receipt of distribution from any investment.

The Authorised Corporate Director for Vanguard LifeStrategy Funds ICVC is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard LifeStrategy Funds ICVC.

For further information on the fund's investment policy, please refer to the Key Investor Information Document (“KIID”). The KIID and the Prospectus for this fund is available from Vanguard via our website

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