Investing in retirement: how to make your pension work for you

If you’re planning to use your pension pot to draw a regular income or take a series of lump sums, you’ll need to think carefully about how the rest of your pension stays invested.

The decisions you make now can help determine how long your money lasts – and how confidently you can enjoy retirement. 

Your investment goals may shift in retirement

During your working years, the aim was straightforward: grow your pension as much as possible. In retirement, your goals usually broaden – and your approach to risk may change too.

You might want some growth to support your pension over time and help offset rising prices. But you may also place more emphasis on stability than you would earlier in life, when you had more time to recover from market falls.

Investing in retirement is about striking a balance that supports your income needs while allowing your money to continue working for you.

Where to invest: three things worth thinking about

With those shifting goals in mind, here are three things to consider when investing in retirement:

1. Your attitude to risk

Consider how comfortable you are with market ups and downs, particularly now that you may be relying on your pension more than earlier in life. As people move through retirement, they often place an increasing emphasis on lower‑risk investments to help reduce the impact of market falls on their overall portfolio.

A portfolio with more shares can offer higher long‑term growth but will fluctuate more. A portfolio with more bonds¹ may feel steadier but typically grows more slowly. The mix that’s right for you depends on how much movement you can tolerate – and how much risk your finances can realistically take.

2. Longevity

People are living longer, often spending decades in retirement. Thinking about how long your pension may need to last – potentially 20, 30 or even 40 years – can help shape the mix of investments you choose. A longer time horizon may influence how much risk you’re willing to take, even after you’ve stopped working.

3. Inflation risk

Even modest inflation² can reduce what your pension can buy over time. That means money held in cash and lower‑growth investments may lose purchasing power. Keeping some exposure to investments with long‑term growth potential – such as shares – can help protect the real value of your pension income over the years.

How you can invest in retirement

There are several ways to invest in retirement, depending on your circumstances and how hands-on you want to be. At Vanguard you can:

1. Build your own portfolio

You can choose your own blend of investments to suit your attitude to risk and preferences. This gives you full control over how your money is invested. We offer a wide range of low-cost funds to support this approach. 

Our funds have two share classes: ‘income’, which pays out income, and ‘accumulation’, which lets the income build up (or accumulate) in the fund. In short, income share classes are better suited to investors looking for an income, while accumulation share classes are designed for investors seeking to grow their money. Find out more about the difference between income and accumulation. 

2. Choose a ready‑made portfolio

If you prefer a simpler approach, you can choose a fund where the blend of investments has already been put together for you.

For example, our LifeStrategy funds combine multiple funds into a single portfolio, giving you access to thousands of shares and bonds. Each LifeStrategy fund has a set mix of shares and bonds, so you can pick the one that suits you. We offer income and accumulation share classes for each of our LifeStrategy funds.

3. Keep some cash in a Money Market Fund

A money market fund is a low-risk investment designed to provide stability rather than growth, while aiming to give you a slightly higher return than cash. It can help meet your short‑term income needs and means you don’t need to sell longer‑term investments when markets are down, helping to protect the overall value of your pension.

What to think about next

How your pension is invested is only part of the picture. You may also want to think about:

• How much you can safely withdraw from your pension

How much you withdraw – and how flexible you are – can affect how long your pension lasts. This is particularly important during market downturns. Learn about the different ways to draw income from your pension, including taking a fixed percentage and Vanguard’s ‘dynamic spending’ strategy.

• How tax affects the income you take

Understanding how different sources of retirement income are taxed – and how to make the most of tax‑efficient allowances – can help you keep more of what you withdraw. Our guide on making your retirement more tax‑efficient explores some of the key things to consider.

Bringing it all together

There’s no single ‘correct’ way to invest in retirement, and your approach doesn’t have to stay the same throughout. What matters is choosing an approach that feels right for you – one that balances growth and stability in a way you’re comfortable with.

It’s also worth remembering that what’s right for you isn’t just about how your money is invested. Your spending needs, how flexible your income is, your tax position and how involved you want to be in managing your finances can all play an important role in shaping your retirement plan.

Once you’re clear on those things, it becomes much easier to invest in a way that supports the lifestyle you want for as long as you need it. And if you’re unsure what’s right for you, speaking to a financial adviser can help you explore your options.

¹ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

² Inflation is the rise in prices for goods and services over time, meaning your money buys less than it used to.

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, rising to the age of 57 in 2028.

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.

Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.

Vanguard LifeStrategy® 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.

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

Important information

Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.

For further information on the fund's investment policies and risks, please refer to the prospectus of the NURS and to the KII before making any final investment decisions. The KII for this fund is available, alongside the prospectus via Vanguard’s website. This is designed for use by, and is directed only at persons resident in the UK.

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

The information contained herein 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 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 shares and /or units of, 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 investors in UK domiciled funds, see our summary of investor rights available in English.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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