Rethinking Retirement Investing

Posted: 18 Jun 2015

Date Written: May 29, 2015


The objectives of retirement investing have not changed: to provide an expected quality of life in retirement. What has changed is how that objective, or benefit, is funded. The recent changes to UK legislation on DC pensions mean that there is no longer the obligation, for most retirees, to use their pension pot to purchase an annuity. With the responsibility for decumulation now shifted to customers and their advisers, there is now a requirement to rethink retirement investing.

This paper discusses a ‘lifecycle’ framework for retirement investing which addresses the shift from asset-optimised investing for accumulation pre-retirement to a liability-relative approach for decumulation post-retirement in a DC pensions context. In this context, it looks at the shape and structure of the post-retirement liability as well as investment and insurance strategies needed to match these requirements. Definitions of outcome and risk to outcome that goes beyond standard concept of risk and return are also considered in the context of retirement. The accepted use of income replacement rates as an adequacy measure has advantages and disadvantages. Risks to retirement outcome can be defined by shortfall risk and its key determinants, such as longevity risk, inflation risk, liquidity risk and mismatch risk. In all cases, investment term is a key factor when designing strategies that are appropriate for retirement investing.

The paper outlines how blending insurance products with traditional asset allocation strategies can mitigate these risks to match the various spending objectives of retirees. The aim is to provide a deeper understanding of the broader challenge of retirement investing that goes beyond a traditional asset-only approach.

Keywords: retirement, annuities, longevity, portfolio choice

JEL Classification: G11, G18

Suggested Citation

Cobbe, Henry, Rethinking Retirement Investing (May 29, 2015). Available at SSRN:

Henry Cobbe (Contact Author)

Elston Consulting Ltd. ( email )

United Kingdom
+442070428044 (Phone)


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