For financial professionals in the UK

Everything you need to know about investing for income or growth for retirement

16 May 2022
8 minute read

Reaching the age of 50 is often a signal for assessing where we are now – and how we might want to spend the rest of our lives. That’s why we prefer to call it the Big 5-Oh. And one of those ‘Oh’ moments is when we realise that we need to ensure we have enough money for retirement – however long we might be retired for.

Individual Savings Accounts (ISAs) and Self-Invested Pension Plans (SIPPs) are a big part of retirement planning for most people, but simply choosing to have them is just the first step. It’s the way we invest in them that will matter most when it comes to having a good standard of living in retirement and being able to do all that we want to do.

When you consider that retirement can last for 20, 30, 40 years or more, making the right investment choices becomes essential. In our previous article Good investments for retirement, we examined different ways to invest in your retirement. This article will look at key strategies you might want to consider. In particular, investing for growth, investing for income, or a combination of the two.

Investing for growth

Simply growing your savings by as much as you can is generally the preferred choice when you’re some way from retirement. Essentially, you’re buying assets that you believe will go up in value over time.

Some people put their money in a bank or building society account; however, the opportunities for growth there are minimal. The amount of interest you receive will likely be small as well – and not even enough to counter the effect of inflation. These accounts are useful for keeping a relatively small amount of ‘rainy day’ money readily accessible if you ever need it, but you should consider investing the majority of your money elsewhere.

In particular, the stock market offers much more growth potential, provided you’re prepared to invest for long enough. So whether you opt for ISAs or a SIPP, there are plenty of choices. Equities generally offer the most prospects of growth and provide an opportunity to beat inflation. However, equities tend to be more volatile than most asset classes. The two most popular types of funds when going for growth are equity funds, which invest in company shares, and multi-asset funds, which invest in a range of asset classes, including equities, bonds and commodities.

When investing in equities, it’s essential to consider your risk appetite. You may be ultra-cautious, or you could be very adventurous – or anywhere between those two ends of the spectrum. Those who are a long way from retirement tend to have a higher risk appetite for two reasons: it gives their investments time to grow and allows them to recover should they incur losses. However, those nearing their desired retirement age might be more cautious as they don’t want to risk losses in the last few years and prefer more stable returns.

As well as risk appetite, there are other choices to make. In particular, how and where do you want your money to be invested? For example, a global fund might spread the risk, but focusing on one country or region – or newer ’emerging’ markets – could potentially offer higher returns. Similarly, you might opt for certain sectors, such as property, tech, smaller companies, or ethically based investments.

For some, investment trusts are the way forward. Their advantages often include a low cost of investment, active management, transparent governance, diversification, and revenue reserves (which can help the trust weather periods of volatility).

Both ISAs and pensions can offer you these kinds of investment choices, but each comes with its advantages and disadvantages, from the amount you can invest to the tax you may have to pay.

Overall, what’s important is that you consider carefully how and where your money will be invested, that you’re comfortable with the amount of risk you’re taking and that these factors align with your retirement goals.

Investing for income

Income investing means selecting investments that are designed to deliver a flow of income over the investment period, usually in the form of dividends.

This can be useful once you’re nearing retirement, as you’ll want to think about how you might start to have money coming in. It can also be a good way of investing once you’re actually retired, as you may be retired for a long time, and you want to be sure that the money doesn’t run out. (This is one reason why some people opt for an annuity, which guarantees you a certain income for life, bought with some or all of their pension pot when they retire.)

When you still have a long way to go before you retire, investing for income has two main drawbacks, however.

The first downside is that if you spend the dividends you receive, you’ll have less money when you actually retire. With ISAs, there’s always that temptation as your money is always there for you to access whenever you wish. In addition, dividends from ISAs (usually paid twice a year) aren’t subject to income tax.

This is related to the second drawback. If your investment is in a pension, you’re not allowed to access it, or to receive any income from it, until you actually retire. Instead, any dividends an investment might generate are automatically re-invested.

It’s only when you opt for drawdown – taking money out of your pension – which can be any time after the age of 55, that you can start to receive money from dividends. You can take 25% of your pension tax-free, either as a lump sum, or split into regular payments. Above that level, any additional income you receive, including dividends, is subject to income tax.

All the same, certain investments designed to provide income actually perform better than some designed for growth, assuming the income is reinvested so you benefit from compound interest. Equity income funds, for example, can occasionally outperform funds that are purely growth focused. But on the whole and in the long term, you’re more likely to be better off when saving for retirement with investments designed purely for growth.

Of course, when you’re closer to retirement, you may want to take a closer look at investing for income. For example, you may want to semi-retire, using dividends to top up your income. A good option here could be those investment trusts which provide a stable and reliable dividend. Just remember that until you officially retire, those dividends will need to come from outside your pension.

As with investing for growth, always make sure you’re happy with the level of risk you’re taking and exactly where and how your money is invested.

When you do actually retire, there are also different options for taking your money, including annuities and income – but that’s a subject you should take advice on when you’re close to retiring.

Combining income and growth

Depending on where you are in your retirement journey, a combination of growth and income might be appropriate. This is particularly true for those who are getting closer to retirement or are actually retired. Certain approaches make it easy to have the best of both worlds. For example, within your ISA or SIPP you can opt for two or more investments – for instance, one that’s growth-focused and one that’s income-focused. Bear in mind, however, that until you retire, any income you receive will automatically be reinvested.

Some companies offer a wide range of investments, making it easier for you to diversify your portfolio and lessen risk. This can also be a good option for weathering market fluctuations. For example, UK investors who had diversified portfolios fared better during the turmoil caused by the pandemic compared to those who were focused on the domestic market.

At Janus Henderson, we have a range of 12 different investment trusts, with total assets valued at £9.3 billion.* We invest in a wide range of countries, sectors and assets to provide investors with choice, diversity and opportunity. Whether you’re looking for capital growth or income (or a blend of both), there’s a wide range to choose from.

Talk to a professional

As always, we recommend talking to a professional if you’re not sure how best to proceed. A financial adviser will advise on suitable pensions or other investments, helping you to pick the right one(s) for your needs, and which match your risk appetite.

When deciding your risk appetite, make sure you’ve worked out where you are now, and your financial goals for retirement. There’s more on this in 8 Steps to Smart Retirement Planning.

Some financial advisers are tied to certain companies and will only advise on a limited number of options. These are known as restricted advisers. Many people prefer to use an independent financial adviser (IFA) instead, as they are not tied to a particular company. Make sure you know what type of adviser you’ll be talking to before engaging them.

Final summary

There’s more on the different ways to invest plus a wealth of free retirement planning information on our Retirement Planning Hub. In particular, you may want to download our free Retirement Guide.

If you would like to find out more about Janus Henderson investment trusts, please visit Investment Trusts Home.

* Source: The Association of Investment Companies (AIC), 30 September 2021

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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