How to supplement your retirement income


Making sure you have enough income to support your needs and aspirations in retirement is never straight forward. For many, the challenge has become more acute with the squeeze on many traditional income streams.


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Even with a healthy pot of hard-earned savings, historically low interest rates mean the income you can earn on cash savings in the bank or building society might fall short of expectations.

Then there’s the return of inflation. To maintain your standard of living in retirement, the income from your savings needs to keep up with rising prices. This can be hard when inflation is consistently higher than interest rates.

The right solution will be unique to your goals and needs, but investing some or more of your savings could help you meet your goals in retirement, without having to compromise your financial future.

The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

Pension freedoms and opportunities

Traditionally, annuities have been the go-to financial product for retirement. In exchange for handing over the pension savings you have accumulated, you receive a guaranteed cash income for life.

Annuities can remain an effective way to generate a secure, albeit inflexible, income stream. However, recent pension reforms mean you now have more choice about how to access your life savings and what you can do with them.

Pension drawdown options allow you to invest your retirement savings however you like, and then take as much or as little income as you want from it, from the age of 55. Significantly, when you move money into drawdown – where your money remains invested – you can take up to 25% as a tax-free lump sum that can be spent or invested as you see fit.

Investing for income

You have likely been accustomed to investing for accumulation – looking to grow your money over the long term – as you were building your savings pot ahead of retirement. While your priorities may have shifted for the next chapter in your life, there are a range of investments that aim to deliver a regular income, provided you can accept some level of risk.

Certain investments can help deliver an income that rises and falls in line with inflation, to help protect their value from being eroded over time by higher prices. Others can deliver a growing income, if they are successful. There is typically a trade-off, however, between the security of income from investments and possible growth in income or value.

One approach to investing in retirement can be to draw a “natural income” from your portfolio. This is where you might look to enjoy the income that your investments generate while leaving them intact – in other words, not selling them down over time.

This could be an attractive approach if you would like to preserve your capital in retirement to cover potentially large one-off costs, like healthcare or treatment. It might also appeal if you would like to pass on your investment pot to the next generations.


In general, higher risk investments can offer higher potential incomes, but you have to accept that income from investing can never be guaranteed and you could lose some or all of the money you invest. You should remember that up to £85,000 of your money is secure in a bank or building society through the Financial Services Compensation Scheme, unlike stocks and shares or fixed interest investments which are less secure.

Investing in funds for income

Professionally managed funds – which combine a range of assets into a single investment – will aim to achieve a specific objective that could resonate closely with your own personal investment goals.

Many funds target a regular or rising income while aiming to avoid or minimise capital loss for investors. Fund managers will aim to achieve their objective over a given period by actively selecting and managing a combination of assets.

When funds generate income from their investments, that income will be paid out to you on a regular basis – say quarterly or annually, depending on the fund – if you choose to own income shares. The alternative is to reinvest that income to generate further income and capital growth by holding accumulation shares in a fund.

To make the right investment decisions you need to establish your appetite for risk. This is likely to be shaped by your other savings – in the form of any state or private pensions, or cash in the bank – and other assets, such as property.

You should also be guided by how much you would rely on any income from investing: your approach might be very different if you need an income to meet costs, rather than to pursue an ambition, like travelling, that might otherwise not be possible.

Important information

We would like to remind you that we are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

Please also keep in mind that the value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. There is no guarantee any fund objective will be achieved and you may not get back the original amount you invested.