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How to invest for an income in retirement

When you're retired, it's important to manage your investments carefully. For example, choosing investments that could provide a regular income, as well as capital growth.

With inflation running high, many people are finding they’re unable to buy as much with their savings as they could before. 

Investing your money over the medium to long term may give you a better chance of beating inflation, as your money has greater potential to increase in value over time. 

Keep in mind that all investments come with some degree of risk, and there’s a chance you might not get back what you put in.

Your retirement investment options

When you’re near retirement, you should take stock of all your savings and investments. After all, you may have built up money in lots of different places, such as in pensions, ISAs, savings accounts, even company shares. Wherever your money is saved, you’ll have some investment decisions to make.

If you have defined contribution pensions (also called ‘money purchase’ schemes), you’ll be given options on how to access the money from your pension pot

If you have a defined benefit pension (also called a ‘final salary pension’), you’re likely to have the option of receiving a tax-free lump sum, as well as a pension. So, you’ll need to consider what to do with the lump sum.

If you’re planning to draw an income from your pension, you’ll need to think carefully about how to invest the remainder of your pension pot. 

If you have money invested in ISAs, you’ll need to consider whether to take a tax-free income, and if they continue to be in the right type of investment.

Here are a few things to think about:

There’s a risk you could run out of income

It might be tempting to withdraw a large chunk of your retirement savings now – but you’ll need them to last for the rest of your life.

According to the Office of National Statistics (ONS), the average life expectancy for most 55-year-olds today is another 30 years. However, many of us will live longer than this. One in 10 people will reach 100 years old. 

Over many years, inflation will also reduce the value of your savings. 

To try to avoid running out of income, you need to manage your investments carefully. This includes, not only thinking about how to invest your pension pot, but also how much to take out and how often.

Your investment goals are likely to have changed

During your working life, you may have contributed to pensions designed to provide long-term growth. And it’s still important to invest for the long-term.

But you may now have an additional goal – to invest for an income. This generally means trying to choose investments that could provide a regular income, as well as capital growth. 

Explore income-generating investments

As the name suggests, income investments – such as bonds, income funds and multi-asset funds – will pay you any income they generate. These differ from accumulation funds, which invest any income generated back into the fund. 

Some types of high-yield funds invest in bonds and company shares that aim to pay high dividends and so will potentially pay you a higher income. But as with all investments, there are no guarantees.

HSBC customers can explore a wide range of income funds via our online Global Investment Centre. You can open an account to browse and research the options available, without having to invest. Only if you invest will account fees apply.

Alternatively, you could speak to a financial adviser to see what options might be right for you.

Consider splitting your investment pot

For shorter-term income, consider investing some money in very low-risk assets, such as cash or bonds, to help provide the money you’ll need to live from. 

For longer-term income, you may be prepared to invest in higher-risk income funds designed to provide a higher yield. Although, as with all investments, there are no guarantees – your pension pot can still go up or down in value. 

It’s good to have a safety net

As you know, the stock market can take a tumble due to unforeseen events. That’s why you’ll want to have an accessible emergency fund to fall back on in times of market turbulence. 

Having some savings to live on allows you to leave your investments untouched, giving them more time to potentially recover in value.

Calculate your retirement lifestyle

Our retirement calculator helps you work out how much you may need to live on.

Retirement planning support

We offer a range of guides and tools to help you navigate the world of investing, as well as achieve your ideal retirement lifestyle.

We also understand financial decisions can be difficult to make on your own. Here’s how you can get support:

Pension Wise

Pension Wise is a government-backed service from MoneyHelper. They offer free, impartial guidance for those aged 50 or over.

Visit MoneyHelper: Welcome to Pension Wise.

Specialist advice about your pensions and investments

If you have £100,000 or more in pension savings and investments, our financial advice could help you make the most of your money. We have a specialist team that will help you make the most of your pension pot when you retire. Eligibility criteria and fees apply.

Explore: The benefits of financial advice