Rethinking Investment Risk in Retirement
- Geoff Brooks
- 17 minutes ago
- 4 min read
Introduction
Within the evolving financial advisory landscape, client risk profiling has progressed significantly. Today, it is predominantly shaped by advanced behavioural scorecards and profiling engines that define a "volatility corridor" within which clients are placed. While this approach has proven effective during the accumulation phase, its suitability in the context of retirement planning warrants careful reconsideration.
Challenges in Retirement Planning
Retirement planning presents a complex array of variables, including unknown longevity, fluctuating income needs, and unpredictable market conditions. Traditional tools—such as risk-rated models based on historic asset returns and standard volatility metrics—often fall short when addressing the realities of modern retirement.
Sequence risk, or the risk of withdrawing funds during a market downturn, is widely recognised as one of the most critical and difficult investment risks to manage during retirement. Recent global events—including market volatility triggered by geopolitical developments, economic disruptions, and fiscal policy missteps—have underscored the shortcomings of low-risk bond-heavy portfolios and static allocation models.
Additionally, lifestyle default funds within Defined Contribution (DC) pension schemes frequently fail to adequately inform or protect investors nearing retirement. While actuaries may argue that lower annuity capital values are balanced by higher rates, outcomes for retirees could be significantly enhanced through improved portfolio construction and strategy.
The Case for Equity Exposure in Retirement
Assuming an average life expectancy of 85 years, retirees may benefit from maintaining higher levels of equity exposure in their portfolios. Doing so may increase sustainable withdrawal rates from 4% to 5%, or even up to 7% in certain cases.
However, it is critical to distinguish between traditional volatility measures and maximum drawdown risk. Retirees are generally more concerned with the size and impact of market losses than with daily or monthly fluctuations. Unlike younger investors, they may lack the time horizon to recover from deep market declines. Therefore, a retirement strategy should aim to deliver a smooth, reliable income stream rather than simply minimising volatility.
Alpha Beta Lifetime Solution: An Innovative Approach
At Alpha Beta, we have spent several years developing a solution in collaboration with Professors Steve Thomas and Andrew Clare of Bayes Business School. This partnership has produced a Sequence Risk Management methodology specifically designed for retirement portfolios.
This approach allows retirees to remain invested in the market, access higher return potential, and simultaneously manage the risk of large drawdowns. The methodology is:
Backed by academic research
Powered by proprietary data models
Tested live over five years with Alpha Beta’s own capital
Implemented using low-cost ETFs and trackers
Systematically managed with risk-control triggers that switch to cash when needed
Performance Overview
Figure 1: AB Lifetime Portfolio – Year-to-Date Performance Morningstar data
Source: Morningstar Direct, 2025
Note: In light of the current heightened market volatility, the performance data presented reflects year-to-date (YTD) returns in order to demonstrate the portfolio’s behaviour during recent market conditions. It does not represent performance since inception. Longer-term performance information is available upon request or via our website. This information is provided for illustrative purposes only and should not be construed as investment advice or a recommendation. Past performance is not a reliable indicator of future results. The value of investments may fall as well as rise, and investors may not recover the amount originally invested.
The AB Lifetime Portfolio has demonstrated strong performance with lower volatility and shallower drawdowns compared to many cautious-rated funds. Despite allocations that may reach up to 90% global equities at times, it has maintained a risk rating of 3, as independently assessed by Defaqto, based on five years of live data.
Personal Withdrawal Rates and Income Stability
Each year, a client’s Personal Withdrawal Rate (PWR) can be calculated based on the current return distribution of the AB Lifetime Portfolio. This enables clients to plan their retirement income with greater confidence and lower variability than would be experienced with a traditional equity market benchmark.
Academic research by Clare et al. (2017–2019) indicates that this risk-managed approach could enhance PWR by up to 50% compared to traditional market portfolios—while preserving the flexibility and ownership that annuities do not provide.
Figure 2: Personal Withdrawal Rates (PWRs) for Various Confidence Level
Source: Suarez et al., 2015
Conclusion
The investment environment for retirees is increasingly complex. Traditional risk profiling and default lifestyle strategies may no longer be sufficient. A dynamic, research-backed approach—focused on drawdown management rather than simple volatility reduction—offers the potential to improve retirement outcomes significantly.
The AB Lifetime solution provides a compelling pathway for retirees seeking growth, protection, and income stability.
Disclaimers and Risk Warnings
This document is intended for professional advisers and qualified investors only. It does not constitute investment advice or a personal recommendation. The value of investments may fall as well as rise and is not guaranteed. Investors may not get back the amount originally invested. Past performance is not indicative of future results.
The AB Lifetime Portfolio is a proprietary strategy managed by Alpha Beta Partners Ltd. Risk ratings and other classifications are subject to change. Clients should consult with a financial adviser to ensure suitability based on their individual circumstances.
