How to De-Risk Your Investments Before Retirement

A New Zealand retirement typically spans 25 to 35 years, which means making your whole portfolio defensive five years out from 65 is often the wrong move. The sharper question is how much of your wealth needs to sit in safer assets to fund the next three to seven years of spending, so a market downturn cannot force you to sell growth assets at the worst possible moment. The rest can stay invested, doing the long work of protecting your income against inflation.

This framing matters because the common mistake cuts both ways. Some New Zealanders hold exactly the same portfolio at 63 they did at 43, then discover the consequences when a correction arrives just as they stop earning. Others overcorrect, shift everything to cash and term deposits, and watch inflation quietly erode purchasing power across a retirement lasting decades.

De-Risking Is About Protecting Near-Term Spending, Not the Whole Portfolio

De-risking is the process of adjusting your asset allocation so a severe market decline cannot cause permanent damage at the point you begin drawing on your wealth. Practically, this means holding enough in stable assets (cash, term deposits, and bonds) to cover the spending you cannot defer, while leaving the rest in growth assets so your income keeps pace with rising costs over the next two or three decades.

A portfolio with 80% in shares two years before retirement carries meaningfully more risk than the same portfolio held at 40 with 25 years of earning ahead. The difference is not the assets themselves but the absence of time to recover from a large decline while you are also withdrawing. De-risking aims to soften this vulnerability without eliminating investment risk altogether, because eliminating all risk creates a different problem: running out of money late in life.

Sequence of Returns Risk: Why Order Matters More Than Average

The primary reason to think carefully about allocation in the years surrounding retirement is a concept called sequence of returns risk. Over 20 or 30 years, the average return of your portfolio matters far less than the order in which those returns arrive, particularly once you begin making regular withdrawals.

If markets fall sharply in your first few years of retirement while you are selling assets to fund living expenses, you lock in those losses permanently. Fewer assets remain to participate in the eventual recovery. Research by Michael Kitces and Wade Pfau has demonstrated how a bear market in the first few years of retirement can deplete a portfolio decades faster than the same downturn occurring later.

A simplified scenario makes this concrete. Consider two New Zealanders, each retiring with an $800,000 diversified portfolio and withdrawing $40,000 per year, adjusted upward at 3% annually for inflation. Both experience an average annual return of roughly 6% over 20 years. The difference is the order of returns:

• Investor A suffers returns of negative 20% and negative 15% in years one and two, followed by above-average returns across the remaining years to produce the same 20-year average.
• Investor B enjoys above-average returns in the early years, with the same sharp declines arriving in years 19 and 20.

By year 10, Investor A's portfolio sits at roughly $370,000 after ongoing withdrawals compounded the early damage. Investor B's portfolio, supported by strong early growth, sits near $900,000. Investor A's portfolio is exhausted by approximately year 17. Investor B retains roughly $700,000 after the full 20 years. Same average return over the period. One investor is comfortable; the other has run out of money.

You cannot control the market. You can control how much of your wealth is exposed to it at the most vulnerable moment.

NZ Super Is a Shock Absorber, Not a Nice-to-Have

NZ Superannuation is one of the few pensions in the developed world paid universally, indexed to wages, and not means-tested. For de-risking purposes, it functions as an inflation-linked annuity you already own. The more of your essential spending it covers, the less of your portfolio needs to sit in defensive assets.

As at 1 April 2026, the gross rates on tax code M are approximately $555 per week for a single person living alone (around $28,900 per year before tax) and $854 per week each for a qualifying couple, roughly $1,708 combined per fortnight or $44,400 per year before tax. Rates are adjusted each April. Your current entitlement can be confirmed on the Ministry of Social Development website.

This floor income changes the de-risking maths. If NZ Super covers your essential living costs (rates, power, food, modest travel), more of your portfolio can remain in growth assets, because you are less reliant on selling investments during a downturn. If NZ Super falls well short of your desired spending, you need more of your portfolio in defensive, income-producing assets to bridge the gap. Framing de-risking around this gap is more precise than applying a generic allocation rule based solely on age.

Glide Paths: Reverse and Flat, Not Just Downward

A glide path is a planned shift in asset allocation over time. Most conventional glide paths move in one direction: growth assets fall steadily as retirement approaches, then continue falling through retirement. Recent academic work suggests this may be backwards.

Two alternatives worth understanding:

• Reverse (or rising) glide path: Defensive holdings are highest in the first decade of retirement, when sequence risk is at its peak. As the retiree ages and the early years are safely behind them, the portfolio gradually tilts back toward growth. The logic: protect against the years where damage is hardest to recover from, then let the portfolio run as the time horizon for remaining spending extends.
• Flat (static) allocation: A single diversified allocation (often something like 50 to 60% growth) held consistently through both accumulation and retirement, with regular rebalancing. Simple, behaviourally easier to stick with, and outperforms most tinkering.

A conventional downward glide path still works for some retirees. The point is to pick an approach deliberately rather than drift into an ever-more-defensive portfolio simply because another birthday has passed.

The Bucket Approach: Segment by When You Need the Money

One practical framework for making retirement drawdown work is the bucket approach, which segments your portfolio by when you will spend it:

1. Cash bucket (years 1 to 3): Two to three years of living expenses held in high-interest savings or term deposits. This covers immediate needs regardless of what markets are doing.
2. Income bucket (years 4 to 10): Five to seven years of spending in bond funds, balanced PIE funds, or other income-producing holdings. These assets generate regular interest or distributions, typically yielding 3% to 5% annually after all taxes and fees, and can replenish the cash bucket while buffering your spending from your growth assets.
3. Growth bucket (year 10 and beyond): The remainder stays in diversified equity funds or a KiwiSaver Scheme growth option. Because you will not touch this money for a decade or more, it can ride out market cycles. Thinking in terms of your investment horizon for each bucket is what makes this framework practical.

The bucket approach has critics, and real-world application involves judgement about when to refill. Its primary benefit is psychological: when markets fall sharply, knowing your next three years of spending are already in cash makes it easier to leave your growth assets untouched until they recover.

KiwiSaver Scheme Considerations at Retirement

Your KiwiSaver Scheme balance becomes fully accessible from 65, and there is no obligation to withdraw. Funds can remain invested within your KiwiSaver Scheme indefinitely, continuing to earn returns.

What does change at 65: the annual government contribution (up to $260.72) ceases once you qualify for NZ Super, and employer contributions become optional at the employer's discretion. You can continue voluntary contributions, and you can make partial or full withdrawals at any time.

For de-risking, the most practical lever is fund switching within your KiwiSaver Scheme. Moving from a growth option to a balanced or conservative option is free and can be done at any time. Many providers offer lifecycle options which shift allocation automatically, but a one-size-fits-all glide path may not reflect your circumstances. Someone with a paid-off home, substantial NZ Super entitlement, and a separate investment portfolio has a very different risk capacity than someone whose KiwiSaver Scheme balance represents most of their retirement savings.

Should You Sell Investment Property Before Retirement?

For many New Zealanders, de-risking involves reconsidering a heavy tilt toward residential property. Most property investors we work with do not want to be landlords through their whole retirement. The ongoing demands of tenants, maintenance, rates, insurance, and regulatory compliance become increasingly unattractive when you would rather be somewhere else. A rental property is also illiquid: you cannot sell the kitchen to pay for a trip.

Current tax settings are relevant to timing. The bright-line test sits at two years, so properties held beyond this period are not taxable on capital gains under the bright-line provisions. The broader intention test may still apply in some cases, and interest deductibility rules have shifted over recent years. These settings influence timing, and the sell-versus-hold decision warrants individual analysis rather than a blanket rule.

Tax Efficiency in Drawdown

Once you move from accumulation to distribution, the structures holding your investments matter. In New Zealand, the two most relevant regimes are PIE (Portfolio Investment Entity) funds and the Foreign Investment Fund (FIF) rules for directly held overseas shares and funds with a cost exceeding $50,000. Both have nuances, interactions with your Prescribed Investor Rate, and calculation methods that can make a real difference to after-tax returns.

Rather than rehash the detail here, it is covered properly in the linked pieces. For the purposes of de-risking, the relevant point is that tax structure is a variable worth reviewing alongside allocation, especially if you hold direct overseas shares, a PIR set years ago, or a mix of PIE and non-PIE holdings which no longer fit your income profile.

How to Implement De-Risking

A practical implementation follows three steps:

1. Assess your current allocation. Calculate how your total wealth (KiwiSaver Scheme, direct investments, property, and cash) splits between growth assets and defensive assets. Many people discover their actual allocation is more aggressive than they assumed, especially once property weighting is included.
2. Determine your target allocation. Use the gap between NZ Super and your desired annual spending to estimate how much defensive income you need in cash and bonds. Work backward from there.
3. Rebalance gradually. A phased transition over several years, adjusting every six to twelve months, avoids concentrating timing risk. Directing new contributions (including voluntary KiwiSaver Scheme contributions) entirely toward defensive assets can achieve much of the shift without selling growth holdings at all.

The complexity sits in the interactions: multiple accounts, tax structures, NZ Super timing, and spending assumptions. If your situation involves a KiwiSaver Scheme balance, a separate managed fund, a rental property, and overseas holdings, working through the allocation with an adviser experienced in retirement transitions will typically surface issues a spreadsheet misses.

The Psychology of Holding Growth Assets in Retirement

For many successful professionals, the harder decision is not when to sell growth assets but whether to hold enough of them. After decades of being told shares are risky, keeping 40 or 50% in equities through your seventies can feel reckless, even when the numbers say it is prudent.

The goal of retirement planning is to ensure your money lasts at least as long as you do. A portfolio producing 2% less annual return which lets you hold steady through a market correction is often the right portfolio for someone in their sixties. Most projections do not account for the behavioural cost of a 30% drawdown on your life savings while already retired. The decisions people make under pressure often cause more damage than the drawdown itself.

As Hayden Mulholland, Private Wealth Manager at Become Wealth, puts it: "The clients who handle this transition well are the ones who measure success by whether their income is secure for the next five years rather than by return percentage. When the goal is protecting a lifestyle rather than growing wealth, the decisions become more straightforward."

Frequently Asked Questions

Should I de-risk all my investments at once on retirement day?

A single-day portfolio overhaul concentrates timing risk. You might convert your defensive allocation into bonds on a day when bond prices are elevated, or lock in term deposit rates during a temporary low in the interest rate cycle. A phased transition over several years produces a more resilient average entry across different market conditions.

Can I stay in a KiwiSaver Scheme growth option after age 65?

Yes. There is no forced withdrawal or mandatory fund switch at 65. If your other assets cover near-term spending, keeping your KiwiSaver Scheme investment in a growth option for several more years allows it to continue compounding.

How does the bright-line test affect selling a rental property for retirement?

Under current Inland Revenue rules, the bright-line test period is two years. If you have held the property longer, any gain on sale falls outside the bright-line provisions, though other rules such as the intention test may still apply. For someone selling after owning a decade or more, the bright-line itself is unlikely to be the obstacle; the broader tax treatment should be confirmed with a tax adviser.

Putting It Together: Retirement Investment De-Risking

De-risking for a 25 to 35 year retirement is less about making your whole portfolio defensive and more about insulating your near-term spending so the rest of your wealth can keep working. NZ Super does real work as an inflation-linked floor. Your KiwiSaver Scheme allocation, cash buffer, bond holdings, and any property all need to sit together in a way which reflects how long the money has to last.

Mapping how your NZ Super entitlement, KiwiSaver Scheme balance, other investment holdings, and spending needs through retirement interact often reveals gaps and mismatches which are invisible when looking at each account in isolation. If you would like help working through these connections for your own situation, our retirement planning team works with people at this stage every day. Book your initial consultation.