The real challenge, however, is not avoiding risk altogether.
It is understanding that different risks can affect our retirement savings, and putting sensible structures in place to manage them.
The goal is a retirement that feels steady — where our money lasts and financial decisions or market movements don’t become a source of stress or anxiety.
One of the most important risks is inflation.
It tends to work quietly in the background, steadily reducing what your money can buy. Over time, that adds up.
For example, after 10 years of 2% inflation, a dollar only buys around 83% of what it once did.
When inflation is higher, as it is now, that effect is even more noticeable.
This creates an interesting decision.
Holding too much in cash or term deposits can feel safe, but lower returns may not keep pace with rising costs.
Including some growth investments, such as shares, gives your savings a better chance of maintaining purchasing power over time.
In that sense, taking some investment risk can actually be a more conservative long-term decision.
Of course, growth investments bring market ups and downs.
While this can feel uncomfortable, it is a normal part of investing.
Diversification helps manage this by spreading investments across different areas, reducing the impact of any single event.
It can also help to think in terms of time.
Dividing your money into "buckets" allows short-term needs to be met from more stable investments, while longer-term funds remain invested for growth.
This can reduce the pressure to react to short-term movements.
Longevity risk is another key consideration.
Most of us hope for a long retirement, for many people it could span 20 or 30 years or more.
That shifts the focus from just reaching retirement to sustaining an income throughout it and choosing investments designed to do that.
Sequencing risk also plays a role.
This refers to the timing of investment returns, particularly early in retirement.
Imagine two people with identical savings and identical average returns over 20 years — but one experiences a sharp downturn in year one while the other sees it in year 15.
Their retirement outcomes could be very different.
Holding a cash reserve helps by providing funds for spending without needing to sell investments when values are down.
Flexibility matters as well.
Some investments, such as direct property — owning a rental home, for example — can be difficult to access for spending quickly.
A more diversified mix of investments can provide greater flexibility, making it easier to adjust as circumstances change.
Taken together, these risks highlight a common theme.
Good retirement planning is not about finding the perfect investment, predicting markets, or avoiding risk altogether.
It is about creating a structure that can adapt over time — where money is available when needed and where your plan continues to support you throughout retirement.
— Stephen McFarlane (www.centralwealth.nz) is a certified financial planner CM and a director of Central Wealth Limited
