There is a question that most people approaching retirement with a significant pension pot have thought about but never properly answered: should I be moving to safer investments right now?

The conventional wisdom is clear. As you get closer to retirement, shift your money from equities into bonds and cash. Protect what you have built. And there is genuine logic to that.

The reality is, an awful lot of Irish pension holders have already had that decision made for them — without being asked, without knowing, and quite possibly at the wrong time. And a significant number of others have not made the decision at all, leaving themselves exposed to a risk they have barely considered.

This article is about both. The risk of de-risking too early. The risk of not de-risking at all. And the framework for making the decision deliberately, based on your actual situation rather than a scheme default.

What Is Actually at Stake Here

Let us start by laying out the landscape properly, because there are two distinct risks at play — and most people focus on only one of them.

The risk of de-risking too early. Your pension is still growing in the years before retirement. If you — or more likely, your pension provider on your behalf — have moved your fund into bonds and cash at age 55 or 56, you may be missing out on substantial compounding in what could be your most valuable accumulation window. Equity markets have historically delivered returns of 6–8% per annum over the long term. Cash and short-duration bonds deliver significantly less. Over five to ten years, that difference compounds into a meaningful sum.

The risk of staying too aggressive. This is the one that gets less attention but arguably matters more: sequence-of-returns risk. This is the danger of experiencing a significant market fall in the early years of retirement, whilst simultaneously drawing income from your fund. If markets drop 30–40% in your first year of retirement and you are withdrawing income at the same time, you are selling assets at precisely the wrong moment. The fund never fully recovers. The research on this is unambiguous: the order in which returns arrive in retirement matters as much as the average return over your investment horizon.

Both risks are real. The answer lives deliberately between them — and it is almost never found by leaving it to a scheme default.

What Lifestyling Actually Does

If you have an occupational pension in Ireland, there is a reasonable chance your fund has been automatically de-risked through a mechanism called lifestyling — and you may not know it.

Lifestyling is an automatic process built into many Irish occupational pension schemes. At a trigger age — typically 55, or sometimes ten years before your selected retirement age — the scheme begins gradually shifting your fund out of growth assets and into bonds, cash, and lower-risk funds. The transition usually happens over several years, moving you progressively towards a conservative allocation as you approach your stated retirement date.

The intention is good. Lifestyling was designed to protect pension members from the worst-case scenario: a severe market crash in the final years before retirement wiping out the fund they have spent decades building. That concern is legitimate. Nobody wants to retire at 62 into a 40% equity market decline with no buffer.

The problem is that lifestyling was designed for a very specific type of pension holder — someone who plans to retire at a fixed age, take a tax-free lump sum, and purchase an annuity. In other words, the pension holder of the 1990s.

That is not the typical picture today. An awful lot of people will be planning to use an Approved Retirement Fund (ARF), where the investment mandate is entirely in their hands for the next 20 to 30 years. They may have other assets. They may plan to work part-time into their sixties. Their time horizon is a country mile beyond the five to ten years lifestyling assumes.

As we explored when analysing the cost of pension lifestyling in Ireland, being automatically moved into bonds is a fundamentally different thing from choosing a bond allocation based on your actual income needs and time horizon. One is a decision made for the average. The other is a decision made for you.

The Real Numbers: Two People, Two Very Different Outcomes

Let us make this concrete with a scenario. Picture two people — Summer and Dingo, both from County Cork. Both are 63 years old. Both had, for argument’s sake, €800,000 in their pension at age 58.

Summer’s pension scheme had lifestyling. At 55, the scheme began moving her allocation towards bonds and cash. By 58, her fund was sitting at roughly 70% bonds and cash, 30% equities. She had no input on this. She did not know it had happened until she looked at her statement.

Dingo’s scheme did not operate lifestyling automatically. He stayed in a 70/30 balanced growth allocation through to 60, at which point he reviewed his position deliberately and began a gradual de-risking plan on his own timeline.

Over the five years from 58 to 63, Summer’s conservatively-allocated fund grew at approximately 4–4.5% per annum. Dingo’s growth-weighted fund grew at approximately 6.5–7% per annum.

On €800,000, that difference over five years compounds to somewhere between €85,000 and €100,000.

That is not a trivial number. Ultimately, it represents a difference in retirement income of potentially €3,000–€4,000 a year for the rest of their lives. And it arose not from Summer making a bad decision — but from a default setting she never consciously chose.

The research backs this up with striking force. A deep-dive white paper — ‘Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice’ — backtested lifecycle versus diversified equity strategies across a million simulated retirement scenarios. The findings are not subtle.

Investors in a diversified global equity approach accumulated approximately €1.07 million at retirement, compared to €820,000 for those in a typical lifestyle/target-date fund. Wealth at death was €2.97 million versus €1.2 million for the lifestyle approach. And the risk of ruin — the probability of running out of retirement savings entirely — was approximately 8% for the diversified equity approach versus 15–16% for lifestyle strategies.

Worth reading that again. The approach most people consider ‘safer’ carried almost double the risk of running out of money. As we explored in our analysis of the risk-of-ruin findings from this research, the reason is straightforward: a conservative allocation in the accumulation phase shrinks the pot you retire with, and a smaller pot means less resilience to the income demands of a 25–30 year retirement. That is what lifestyling is doing.

The Risk on the Other Side: Sequence of Returns

Before you conclude that Dingo got it right, consider what happens in an alternative scenario.

Dingo retires at 63 with, for argument’s sake, €950,000 in his ARF — heavily weighted to equities. Markets fall 35% in his first year of retirement. His fund drops to approximately €618,000. The reality is, Revenue’s imputed distribution rules require him to draw a minimum of 4% per annum from age 61 — whether he wants to or not, and whether markets are up or down. Income is being drawn from a significantly diminished fund.

This is sequence-of-returns risk in practice. And it is particularly significant in the context of an Irish ARF, where the mandatory 4% floor means you cannot simply stop drawing in a bad year. At age 71, the rate rises to 5%. For ARFs (combined with vested PRSAs) exceeding €2 million, it rises to 6% — though you should verify the current thresholds directly with Revenue’s pensions guidance, as these figures are subject to change.

The bucket strategy addresses this directly. You hold one to two years of income needs — perhaps €40,000–€60,000 — in cash or short-duration bonds. That bucket funds your income in a down year, allowing your equity allocation time to recover without being forced to crystallise losses. Your equities are left untouched until market conditions allow a more rational decision.

This is why Summer’s instinct — to have some defensive allocation — is correct. The problem was not the objective. It was that the decision was made by default, at the wrong time, without reference to her specific situation.

How to Think About This Decision

If I have explained the two risks okay, the decision itself comes down to three questions worth sitting with — particularly if you are within ten years of retirement and have not approached this deliberately.

Question 1: What income do I need from my ARF in year one? Can you generate that income without selling equities? If the answer is no — if market performance in your first year of retirement will directly determine your income — you have sequence-of-returns exposure. It is a case of building that buffer before you retire, not the morning after.

Question 2: What is my actual time horizon? Not your retirement date. Your actual investment horizon. If you retire at 62 in reasonable health, you may be managing this money for 25 to 30 years. A 60-year-old with a 30-year time horizon has very different risk requirements than a 60-year-old planning on a 10-year horizon. Lifestyling treats them identically.

Question 3: Has this decision been made deliberately — or for me? An awful lot of people, when asked whether they consciously chose their current pension allocation, discover the honest answer is no. A scheme default, an old form, a fund they have never changed. If that is your situation, you are in very good company — and it is not your failing. Nobody sat you down and explained it. It is a case of figuring out what you are actually invested in first. Whether that allocation still makes sense is the second conversation.

Ultimately, this is not about making the mathematically optimal decision. It is about making the decision consciously, based on your picture, rather than having it made for you by a mechanism designed for someone else.

Practical Considerations for ARF Holders

A few points worth noting specifically for ARF holders.

Lifestyling is an occupational pension phenomenon. If your money has already been transferred to an ARF, the lifestyling mechanism no longer applies. But the damage may have already occurred — if your occupational pension was lifestyled in the five to ten years before transfer, the ARF starts from a lower base than it might have otherwise.

The imputed distribution rules compound the sequence-of-returns risk in a way that does not apply in many other jurisdictions. At age 61, Revenue requires a minimum distribution of 4% per annum from your ARF. At age 71, this rises to 5%. For ARFs (combined with vested PRSAs) exceeding €2 million, the rate rises to 6% from age 60. Verify the current thresholds directly with Revenue.ie, as these figures are subject to change.

The reality is, you cannot defer income in a down year the way a non-Irish investor with a discretionary portfolio might. Your buffer strategy needs to be built before retirement, not during it.

For a deeper look at how to structure withdrawals from an ARF in a way that manages both income needs and sequence-of-returns exposure, our piece on safe withdrawal rates for ARF holders in Ireland is worth exploring alongside this question.

Closing Thoughts

The question of whether to reduce investment risk before retirement does not have a single answer. What it has is a process — and that process starts with actually making the decision.

The reality is, an awful lot of Irish pension holders are currently invested in a way they did not consciously choose, for a time horizon their scheme never considered, and without a buffer strategy for the first years of retirement. Addressing this is not complicated. It is a case of understanding what you are in, understanding what you need, and making a deliberate choice that reflects both.

So do yourself a favour and have a think about this — and then follow it up. The worst thing in the world is to have a thought like that and not act on it. Whether it is with us or with another professional financial planning firm, go and have a conversation. Whether the right answer for you involves more bonds, fewer bonds, a bucket, a glide path, or a completely different approach depends on your specific picture. But ultimately the answer should be yours — not a default.

I hope this helps — and thanks a million for reading.

Paddy Delaney QFA RPA APA