How can risk affect your retirement?

Investing your money can be risky. But, it’s important to take some risk if you want your pot to grow and enjoy a comfortable retirement

Retirement could be more than a third of your lifetime, so it’s important you can maintain a sustainable income during this time. Investing for your retirement can be a risky business. Deciding how much risk to take can be difficult. The more risk you’re willing to take with your investments, the higher your potential return – but the greater your chance of loss.

But not taking enough risk can also be a mistake. Lower risk investments can offer greater security, but lower potential returns. This means you might not achieve your goal of enjoying a comfortable retirement. You need to think about what your long-term goals are and decide how much risk you want to take with your pension savings.

How much risk should you take?

When it comes to how much risk you should take, there’s no right answer. Only you know how much risk you’re comfortable taking.

If you’re a more cautious investor, or have a shorter time to save for your retirement, then you might think about spreading more of your money across cash and bonds, taking less exposure to shares. If you feel ‘balanced’ about risk, you might prefer to invest in a mix of things including property, bonds and shares. If you’re a more adventurous investor, or have longer to save for your retirement, you might consider investing more of your money in shares.

You can find out more about different types of investments at the Money Advice Service.

If you’re a hands-on investor, it’s important for you to check regularly to make sure the balance stays right for how you feel about risk. To give you an idea of your attitude to risk, you can use Royal London’s Risk Profiler, which will ask you to answer 12 simple questions to work out whether you’re more cautious, balanced or adventurous.

If you’re adventurous today, you may not necessarily be adventurous in years to come. So as time moves on and your circumstances change, it’s a good idea to pop back to our risk questionnaire and reassess your risk profile.

Remember, all investments carry risk and you could get back less than you invest. However you feel about risk, it’s always good to speak to an impartial financial adviser. They can help you make the right decision to suit your individual circumstances.