Could You Afford a 40% Hit to Your Retirement, and a 5-Year Delay?

Rewinding to the year 2000, the dot-com crash delivered a brutal lesson in market risk. A high-risk investment portfolio could have dropped by as much as 40% over a 29-month downturn. For someone approaching retirement, that kind of loss was not just painful; it was potentially devastating. If you needed to start drawing income during that drop, you would be locking in losses, reducing your portfolio’s ability to recover.

Even more sobering, it took another 34 months, nearly three years, for that portfolio to claw its way back. That is over five years just to break even. Nearing retirement, time is not on your side, and your margin for error shrinks. A portfolio that aggressive might have suited a 30-year-old, but for a 60-year-old, it could derail your retirement entirely.

Yet a review of client data from Vanguard [1] suggests that many investors approaching retirement may be holding more risk than might be considered appropriate at that stage of life.

Below, we explore how taking on too much risk in the later stages of your career could put your retirement at risk, and how to maintain the right balance between growth and security.

 

Investors approaching retirement may be overexposed to market risk

To gauge how much risk UK Personal Investor clients were taking on, Vanguard analysed the average share exposure of investors at various ages.

A greater proportion to shares in a portfolio usually implies a higher level of risk. While shares have greater potential for growth, they also tend to be more volatile, swinging in price. Bonds, in contrast, are loans made to governments or companies that pay regular interest and are generally more stable than shares, but they tend to offer lower expected returns.

The analysis found that, on average, clients aged 50 had 84% of their portfolios invested in shares. This fell only slightly to 77% for those aged 60 and 74% for clients aged 70.

 

Why elevated risk can pose challenges in retirement planning

There are, of course, situations where a higher level of risk may still be appropriate, even for those close to retirement.

For example, some investors may intend to pass on their portfolio to beneficiaries, meaning the funds are not needed for decades. This longer investment horizon can support a higher risk tolerance as there is more time to recover from market downturns. Others may hold more lower-risk investments elsewhere, resulting in a more balanced risk profile overall. They might also view their portfolio as one to draw on occasionally for discretionary spending rather than essential living costs.

Still, it’s worth being aware of the risks. Carrying too much equity exposure in the lead-up to retirement could leave you vulnerable to a major market downturns. In severe cases, portfolios made up of 90% growth assets have seen falls of around 40%, taking more than five years to recover.[2] If such an event happened close to your retirement date, the resulting losses could force you to delay retirement or accept a lower income than planned.

A more diversified portfolio, with a greater weighting towards bonds, may help cushion against market shocks and bring added stability to your income planning.

It’s also important not to overlook the psychological dimension. Higher-risk portfolios can increase stress, particularly during turbulent markets. This can sometimes lead to reactive decisions, such as selling investments during a dip, which might lock in losses and derail your retirement goals.

 

Striking the right balance as you plan ahead

Although managing risk becomes increasingly important with age, it’s equally critical to ensure your investments can still deliver long-term growth.

With life expectancy rising and many people spending decades in retirement, retaining at least some exposure to shares can help your money grow and keep pace with the rising cost of things like food, travel and energy. A completely risk-free portfolio might not generate the returns needed to sustain your lifestyle over a long-term retirement.

Rather than eliminating risk entirely, the key lies in finding a sensible balance. A well-diversified portfolio that blends shares with bonds may offer both the growth potential and resilience needed to support a long and financially secure retirement.

 

Putting it into practice: the role of cash flow modelling

Alongside a balanced investment strategy, cash flow modelling can help bring clarity to your retirement plans.

By mapping how your pensions, savings and investments could support your lifestyle over time, and testing different scenarios, cash flow models reveal potential shortfalls, highlight risks like outliving your money, and support decisions on when to retire, how much to draw down, or whether to gift to family.

Factoring in inflation and tax, it helps you understand the long-term impact of your choices, and plan with greater confidence.

 

Get in touch

If you are unsure whether your investment portfolio is taking on too much risk as you approach retirement, our team is here to help. Get in touch with one of our experienced Chartered Financial Planners to ensure your strategy is aligned with your long-term goals.

Ramsbottom office: Email enquiries@rosebridgeltd.com or call 01204 300010
Chester office: Email enquirieschester@rosebridgeltd.com or call 01244 569141
Leeds office: Email enquiriesleeds@rosebridgeltd.com or call 0113 243 7100

 

Please Note

The Financial Conduct Authority does not regulate cash-flow planning or tax advice. This is for information purposes only and does not constitute advice.  The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is no reliable indicator of future performance.  A pension is a long-term investment, not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

 

[1] Vanguard analysis of UK Personal Investor clients as at 7 February 2025.

[2] Source: Finametrica, historical data on portfolios with 90% growth assets (risk grade 9). Largest drawdown was -40.4% over a period from Aug 2000, with recovery taking more than five years.