Drawing Down, Powering Up: The Case for Equities in Retirement

In our previous article, we explored the importance of maintaining equity exposure while saving for retirement. Now, let’s delve into why it’s equally crucial for those already in retirement.

Even during the withdrawal phase, equity exposure can provide long-term growth and help retirees outpace inflation. That said, the past decade has tested even the most seasoned investors. Growth assets have delivered muted returns, and the volatility - especially during events like the COVID-19 pandemic - has understandably shaken confidence. Many retirees have responded by shifting into lower-risk income funds, seeking stability over growth. But as we’ll explore, this instinct to play it safe can come at a cost. For those with a long retirement horizon, equity exposure remains a vital lever. Not just for growth, but for preserving purchasing power and ensuring that retirement savings last.

Putting Equity to the Test: John’s Retirement Journey

Meet John. At 60 years old, he’s stepping into retirement with R3 million in savings and a big decision to make: how to invest his living annuity. Like many retirees, John is weighing the comfort of a multi-asset income fund against the growth potential of a multi-asset high equity fund. He plans to draw 6.5% annually from his investment, increasing that starting rand amount by 6% each year to keep pace with his inflation.

To understand the long-term impact of his choice, we looked at what would have happened if John had retired at different points in the past: 25, 20, 15, 10 all the way up to 1 year ago, and invested in either the average multi-asset high equity or multi-asset income fund (as per the ASISA categories).

The results above make a compelling case: investing your overall retirement savings in a multi-asset high equity strategy (up to 75% in equities, both local and offshore, with the remainder in income assets) has consistently delivered stronger long-term outcomes, even while drawing a monthly income. Despite periods of volatility and uncertainty, the long-term payoff of equity exposure has remained intact.

Three retirement start dates in particular stand out and are worth highlighting:

• 25 years ago: A particularly strong period for multi-asset high equity investors, despite this period including the the recent weaker decade;
• 20 years ago: A stark warning. Retirees who opted for multi-asset income strategies would have run out of money, while those who stayed invested in multi-asset high equity still has a healthy balance.
• 10 years ago: The one notable exception. Over this period, multi-asset income slightly outperformed multi-asset high equity. But this decade is the outlier, not the rule, and even here, the gap has been narrowing rapidly in recent years.

A key learning from the 25-year scenario is just how difficult the early years of retirement can feel, even when the long-term strategy is sound. For the first six years, John’s multi-asset high equity portfolio underperformed to the point where, had he been focused only on short-term results, he might have questioned his decision to include meaningful equity exposure in his living annuity. Nine years in, he was back at a similar crossroads. But by staying the

course and trusting the long-term fundamentals of equity investing, John’s retirement portfolio not only recovered - it flourished. Had he panicked, questioned fundamentals, and switched to a multi-asset income fund, his savings would have been on a steep and irreversible decline toward zero. This scenario underscores the importance of patience, perspective, and a long-term mindset—especially in the early, emotionally charged years of retirement.

Don’t let the noise drown out the growth

Retirement is not the end of your investment journey, but rather the beginning of a new phase where your capital must continue to work for you. The temptation to play it safe is understandable, especially after a decade where growth assets have tested our resolve. But history shows that those who stay invested in equity-rich strategies are better positioned to preserve their purchasing power, extend the life of their savings, and ultimately retire with confidence. The early years may feel uncertain, but the long-term rewards of equity exposure are clear.

Don’t let short-term noise derail a strategy built for long-term success.