Building the optimal retirement income portfolio

“Cashflow modelling can help with stress testing this too, and of course should be looked at in the context of the individual’s wider assets, not just the value of their pension pot.”

While a cash-flow reserve strategy or buckets approach is sometimes fiddly to implement, Grey says it has the benefit of helping the client to naturally and mentally compartmentalise their capital. 

He adds: “As a result of being able to ensure the client has, say 36 months of income and capital, for certain, encourages better risk decisions for the remainder of their assets – they could tolerate more risk. 

“Part of this is the option of securing income at various stages, particularly as more becomes known about the habits of the client in this phase of their life.”

In an increasingly volatile and changing world, assets that previously may not have been commonplace in a portfolio are increasingly being used.

According to McInally, these include alternative investments - which include private equity and infrastructure - in addition to a typical portfolio make-up of shares, bonds, and cash.

The two main approaches to private equity are buyouts and venture capital. 

Buyouts involve buying a controlling stake in a private company and often borrowing money to do this. 

Venture capital involves buying stakes in companies when they are still young and small. The aim here is to provide these companies with finance and expertise to help them grow. 

McInally says: “Investments in infrastructure can cover both economic infrastructure (such as airports, telecommunications and sources of renewable energy) and social infrastructure (such as hospitals, schools and prisons). As well as offering potential returns to investors, each type creates different benefits for society. 

“Infrastructure investments tend to be long-term in nature. There are many different ways to invest in this asset class. For example, investment managers can buy and hold infrastructure assets that are already in operation. 

“Or they can help to create infrastructure assets and hold an investment in them throughout their development. These strategies are often hard to access for individual investor, but may form part of a diversified larger multi-asset fund that is accessible to them.”

Robson says with persistently high inflation now central to clients thoughts, investors should consider sectors which are able to pass on inflation to the underlying consumer. 

He adds: “Assuming the client’s objectives and risk profile permits it, considering exposure to shares in companies equipped to be able to pass on inflation to the underlying consumer, e.g. energy companies and consumer staples can help offset the difficulties of inflation. 

“In addition, carefully selected exposure to real assets such as infrastructure offering inflation-linked income can help mitigate the effects of price rises.”