It seems to me that the whole basis of ‘Lifestyle Investing’ has been undermined by the twin forces of increasing longevity and the removal of the compulsion to purchase an annuity with pension funds.  I shall start with a quick recap of what I think it means.

The idea of Lifestyle investing is that you are aiming to move completely into cash on a particular date and has been marketed heavily by insurance and pension companies as a solution for retirement planning where it is expected that an annuity will be bought on the day of retirement.  Of course, the last thing anybody wants is for their retirement fund to be exposed to investment volatility, i.e., possible losses, in the run up to annuity purchase.  Better to lock in the gains made over the years of investing by moving the funds gradually to secure investments.  As such, it is hard to fault.

But what if you are not planning to buy an annuity?  If you are expecting to move simply from wealth accumulation to drawing an income directly from your investments, you may not be best served by finding yourself 100% in cash on your 65 birthday.  You may prefer an income yielding balanced portfolio instead, particularly as you may well live for another twenty-five years.  If you are receiving a stable yield of, say, 3% a year as income, it matters less what happens to the capital value of your investments in the short term than that you have a reasonable prospect of being able to maintain your standard of living in real terms indefinitely.

Unfortunately, many Lifestyle funds are bought without any advice so those investing in them may well not have thought through the possible consequences.