For many people, the years approaching retirement are when investment planning starts to feel very different.

While you are working, the main objective may have been to build pensions and investments over the long term.

As retirement gets closer, the focus can begin to shift. You may soon need those assets to help provide an income, and there may be less time to recover from significant market falls.

Does that mean your investments should automatically become cautious as retirement approaches? Not necessarily.

The right approach depends on when you expect to use the money, how much income you will need, what other assets and pensions you have, and how comfortable and able you are to withstand investment losses.

Why retirement can change the investment conversation

Before retirement, many investors are still accumulating wealth and making regular contributions.

Once withdrawals begin, the relationship with investment risk changes.

If markets fall while you are still contributing, you may have time for investments to recover.

If markets fall when you are taking regular withdrawals, however, selling investments at lower values can put additional pressure on a portfolio.

This is one reason investment planning and retirement planning increasingly need to be considered together as retirement approaches.

Think about when you will need the money

Not every pound you have saved needs to do the same job.

Money that may be needed in the next year or two has a very different time horizon from money that may remain invested for another 10, 20 or 30 years.

For someone approaching retirement, it can therefore be useful to think about different future spending needs.

There may be money required for regular living costs, a reserve for unexpected expenses, planned larger purchases or holidays, and longer-term investments intended to support later retirement.

Understanding when money is likely to be needed can help inform how much investment risk may be appropriate.

Should you reduce investment risk before retirement?

This is one of the most common questions people ask.

Historically, some retirement strategies automatically moved pension investments into lower-risk assets as a selected retirement date approached.

But retirement is no longer the same for everyone.

Some people buy an annuity. Others use pension drawdown and remain invested. Some continue working part-time.

Others have defined benefit pensions or other secure income that covers a significant proportion of their expenditure.

If you expect a substantial part of your pension or investment portfolio to remain invested throughout retirement, becoming too cautious too early could create a different risk: your money may not grow sufficiently to keep pace with inflation and support a retirement that could last several decades.

The objective is therefore not simply to remove risk. It is to understand which risks you can afford to take and which you cannot.

Capacity for loss matters

Your attitude to investment risk is important, but it is not the only consideration.

Financial advisers also consider capacity for loss: broadly, how a fall in the value of your investments could affect your ability to maintain your standard of living and achieve your financial objectives.

Two people may feel equally comfortable with investment risk but have very different capacities to absorb losses.

Someone with substantial secure pension income, cash reserves and relatively modest spending needs may be in a different position from someone who will rely heavily on invested assets to pay essential bills.

As retirement approaches, understanding this distinction becomes increasingly important.

Diversification still matters

Retirement does not remove the need for diversification.

Holding investments across different asset types, sectors and geographical markets can help avoid relying too heavily on one particular area.

Diversification cannot prevent losses, and it does not guarantee positive returns.

However, spreading investments can reduce the impact that poor performance in one area has on an overall portfolio.

It is also worth reviewing whether a portfolio that was appropriate several years ago still reflects your objectives today.

Do you need a cash reserve?

For people planning to take income from invested assets, holding an appropriate amount of accessible cash may provide useful flexibility.

A cash reserve can potentially reduce the need to sell investments immediately when markets are weak.

However, holding too much in cash for long periods has its own risks because inflation can reduce its spending power.

The appropriate balance depends on expected expenditure, other income sources, investment strategy and personal circumstances.

Look at pensions and investments together

It can be easy to treat pensions, ISAs, savings accounts and other investments as separate pots.

In retirement planning, it is often more useful to look at the overall picture.

For example, you might have a State Pension, workplace or defined benefit pension, defined contribution pensions, investments and cash savings. Each may become available at different times and have different tax characteristics.

Understanding how these assets interact can help answer important questions such as:

• Which assets will provide essential income?
• Which money may remain invested for the longest?
• How much accessible cash is appropriate?
• How much investment risk can you afford to take?
• How could a market fall affect your retirement plans?
• When should the portfolio be reviewed or rebalanced?

Investment planning should support the retirement plan, rather than sit separately from it.

Avoid making changes purely because retirement is approaching

Reaching a particular age does not automatically mean an investment portfolio needs a wholesale change.

Equally, leaving investments untouched simply because they have performed well in the past may not be appropriate either.

The important question is whether the portfolio still matches what the money now needs to achieve.

A review in the years before retirement can help identify whether the level of risk, diversification, access to cash and overall investment strategy remain suitable for the next stage of life.

Planning for a long retirement

For many people in Richmond approaching retirement, their investments may need to continue working long after their final salary payment.

That means balancing competing objectives: generating enough growth to support future spending, managing the effect of inflation, maintaining suitable access to money and avoiding more investment risk than the retirement plan can withstand.

There is no single investment strategy that is right for everyone approaching retirement.

The appropriate approach depends on your goals, financial position, other income, investment time horizon and capacity for loss.

Richmond Financial Advice works with individuals and families in Richmond, Teddington, Twickenham and across South West London on investment planning, pensions and retirement planning.

Richmond Financial Advice is a sponsor of Richmond Nub News, without our sponsors, our Richmond online newspaper would not be possible. Thank you.

This article is for general information only and does not constitute financial, investment or tax advice. The value of investments and pensions can fall as well as rise and you may get back less than you invest. Past performance is not a reliable indicator of future performance. Tax treatment depends on individual circumstances and may change. The suitability of any investment strategy depends on personal circumstances, objectives and attitude and capacity for risk.