Options for a multi-strategy approach at retirement

In the current UK regulatory landscape, it is increasingly important for financial advisers to tailor their advice to individual clients, rather than relying on a one-size-fits-all approach. The FCA’s Consumer Duty and other regulatory guidelines emphasise clear, fair, and client-centric advice.

Therefore, offering a range of decumulation strategies – ranging from flexible natural income funds and dynamic withdrawal methods to bucket-style allocations and, when appropriate, annuity solutions – enables advisers to meet varying client needs while adhering to best practice standards and regulatory expectations.

An important aspect for advisers to consider is that retirement is not a single phase but a journey with distinct stages. In early retirement, the priority is to generate sufficient cash flow and preserve capital through income funds and growth investments. As clients age, the strategy can gradually incorporate more conservative elements – such as annuities or lower-risk natural income funds – to provide security during periods of reduced earning capacity and increased expenses. 

Addressing each retirement stage

A multi-strategy framework addresses these distinct stages while complying with the FCA’s requirements to act in the best interests of consumers. Each strategy has unique strengths and weaknesses depending on the retiree’s stage and personal circumstances. In general, strategies that combine guaranteed income (such as an annuity) with flexible income sources (such as natural income funds or carefully managed bucket approaches) tend to be more robust for decumulation because they help shield the portfolio from adverse market timing (sequencing risk) and preserve capital while still providing a predictable income stream. The key is to balance simplicity with sufficient diversification and rebalancing discipline so that the strategy remains practical and effective over a long retirement horizon.

Early or active retirement

In early or active retirement, when clients often have higher spending needs and wish to maintain an active lifestyle, a strategy that emphasises income generation combined with a growth component could be ideal. This approach provides a steady monthly cash flow to cover lifestyle expenses, while the growth element may help to manage longevity risk by replenishing the portfolio over time.

1. Natural income approach
2. Bucket-style multi-asset funds
3. Hybrid strategy (income, annuity and growth)
   
   

We believe that one of the most effective options for this stage of retirement is choosing a well-designed natural income fund that provides consistent monthly payouts to cover discretionary spending without depleting principal. Similarly, drawing from a dedicated low-risk bucket minimises market-triggered forced sales, and regular rebalancing supports the value of the capital amid higher spending. A third option could be a hybrid strategy (combining an annuity, with other investments to create an income/growth portfolio)) whereby guaranteed income covers essentials while flexible income from the natural income fund supports an active lifestyle. Here, the growth fund helps replenish the pot.

Mid or passive retirement

As clients transition into a mid or passive retirement phase, the focus shifts towards capital preservation and sustainability and away from active lifestyle spending. At this stage, integrating more secure components – such as partial annuitisation – can offer a stable income floor while still allowing growth funds to build up capital to cover potential long-term care costs later in life. 

1. Constant percentage approach
2. Hybrid strategy (income, annuity and growth)
3. Bucket-style multi-asset funds

A constant percentage approach could be appropriate at this stage, as income variability is more acceptable where overall spending is likely to be lower – withdrawals automatically adjust to preserve capital. Equally, a hybrid strategy is a robust approach, with guaranteed income plus flexible natural income and growth components. This option is good if the client prefers a mix of security and growth. Bucket-style multi-asset funds are likely to be effective if rebalancing is maintained, though the active management may be less necessary if spending is more moderate.

Late or later-life retirement

In the late or later-life stage, where rising healthcare and long-term care costs are likely to become a priority, an increased emphasis on guaranteed or lower-risk income products is beneficial to ensure essential needs are met.

1. Hybrid strategy (income, annuity and growth)
2. Bucket-style multi-asset funds
3. Cash buffer approach 

A key approach for this phase is the hybrid strategy (with a greater emphasis on the annuity element). Increasing the annuity portion or emphasising the guaranteed income part is especially valuable for covering rising essential costs like long-term care. An alternative is bucket-style multi-asset funds with allocation adjusted to be more conservative than the standard 3/5/7 risk profile split. Here, the low-risk bucket for income is expanded, ensuring more stable cash flow in later years while preserving remaining assets. A third option, the cash buffer approach, could be used, albeit with a larger liquidity reserve than in earlier phases, to avoid selling assets during market lows, thus preserving capital for essential expenses.

Ultimately, the focus is on choice and having a mixture of strategies when clients enter retirement. You can find further options for each stage of retirement in our guide, Investment choices for clients in decumulation. By tailoring the decumulation strategy to the evolving needs of retirees, financial advisers can effectively manage risks such as sequencing risk, market volatility and longevity risk, ultimately providing a transparent and sustainable income solution throughout retirement.

Next: Our products and how they can be used in decumulation

In the final article in this series, we look at our actively managed, globally-diversified multi-asset funds, which are designed to help advisers and their clients meet their objectives through long-term capital growth and/or income. We also highlight some of the key underlying strategies held in our multi-asset funds.

Explore more

Important information 

The value of investments may fall as well as rise and investors may not get back the amount invested.

This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the Literature section for each fund at https://www.canadalifeassetmanagement.co.uk/ 

The WS Canlife Sterling Liquidity Fund is a UCITS scheme and a standard variable net asset value (VNAV) money market fund (MMF). The MMF is not a guaranteed investment, nor does it receive external support to guarantee its liquidity. Unlike bank deposits, investment in MMFs can fluctuate and investors’ capital is at risk.