An increasing number of people are concerned about their retirement provision and recognise that private savings play a crucial role. The pension level, which reflects the ratio of the statutory pension to average earnings, has been below 50 percent for many years. At the same time, most individuals aim to maintain around 70 to 80 percent of their former income in retirement. Without additional savings, a significant gap emerges.

Addressing this shortfall requires long-term planning. Starting early and saving regularly allows investors to benefit from compounding, which can help build substantial capital over time. A common guideline is to allocate around ten to fifteen percent of income to private retirement savings. This can create a financial buffer that supplements the state pension later in life.

It is important that contributions are invested in a way that offers sufficient return potential. Traditional savings products and insurance-based solutions provide stability but often deliver returns only slightly above inflation. This can erode purchasing power over time. Preserving value and maintaining purchasing power typically requires exposure to productive assets such as equities or other real assets. These investments can fluctuate in the short term, but broadly diversified equity exposures have historically outpaced inflation over longer periods and supported real wealth creation.

How investors prepare for retirement depends largely on their risk profile and life stage. A 30-year-old can pursue a different strategy than someone in their 60s. During the accumulation phase, the focus is on building wealth. Investments with higher return potential can therefore play a more prominent role. A meaningful allocation to equities offers long-term growth opportunities, and temporary market volatility can be managed over extended investment horizons. Compounding is most effective in this phase, as reinvested returns can significantly accelerate capital growth.

However, diversification remains essential. Allocating across different asset classes — for example equities, bonds or commodities — helps reduce concentration risk. A diversified multi asset portfolio aims for a balanced relationship between return and risk with more moderate fluctuations. This reduces dependence on individual markets, and losses in one asset class can be offset by gains in another.

As retirement approaches, priorities shift. In the transition phase — typically five to ten years before retirement — capital preservation becomes increasingly important. Major losses shortly before retirement are difficult to recover. It is therefore common to adjust the strategy gradually by reducing the equity allocation and increasing exposure to more defensive holdings, such as high-quality bonds, defensive multi asset strategies or liquid assets. Since the capital will soon be required, investors often build a buffer for two to three years of living expenses in cash or short-dated bonds. This helps avoid realising losses during market downturns at the start of retirement.

Once retirement begins, the focus shifts from capital growth to capital preservation and stable income. The accumulated assets should last as long as possible and ideally generate regular cash flows such as interest, dividends or systematic withdrawals. Inflation remains a key consideration. Living costs continue to rise, which means that part of the portfolio must continue to generate growth to maintain purchasing power over time.

Many retirees therefore rely on a combination of stability-oriented investments and growth components. A larger allocation to conservative assets — for example high-quality bonds or defensive multi asset strategies — can help reduce volatility. A smaller allocation to equities can provide long-term growth potential and support purchasing power. An initial distribution of around 70 to 80 percent in conservative assets and 20 to 30 percent in equities can offer both planning security and continued participation in economic growth.

Managing withdrawal rates is equally important. A commonly cited guideline is the four percent rule: investors who have accumulated the equivalent of twenty-five years of expenses can theoretically withdraw four percent per year. This corresponds mathematically to a 25-year horizon (1 / 0.04), which may extend to around thirty years if the portfolio generates positive real returns over time. This rule of thumb must, however, be adjusted to individual circumstances, including personal life expectancy. Many investors therefore choose a more cautious withdrawal strategy and review it regularly to ensure long-term sustainability.

When investing for retirement, individuals can choose between passive and active investment approaches.

• Passive solutions such as index funds or ETFs replicate a market index and offer broad diversification at low cost. Global equity ETFs, in particular, are widely used as a straightforward and potentially return-oriented building block for long-term retirement planning. Over extended periods, such broadly diversified equity ETFs can generate solid returns — provided investors have sufficient time and discipline. However, passive investing also means fully participating in market volatility without the possibility of active risk management.
• Active strategies, on the other hand, are managed with the objective of identifying opportunities and managing risks proactively. Portfolio managers make deliberate investment decisions and can adjust exposures as market conditions change. This is especially relevant in multi asset strategies, where investments are spread across several asset classes. A flexible multi asset approach can help limit losses in stressed market phases and support a more stable investment profile over time. For example, an actively managed fund may reduce its equity allocation during periods of heightened uncertainty or use dedicated risk-management instruments to stabilise the portfolio.

Critics often point to the higher costs of active funds. However, skilled managers can justify these costs by reducing drawdowns, managing risk more effectively and achieving more stable long-term outcomes for investors.

Ultimately, the choice depends on personal preferences. Passive investments require discipline and knowledge, while professionally managed active strategies can reduce complexity for investors by offering a holistic approach with ongoing portfolio adjustments. Both approaches can be effective if applied consistently. Sustainability considerations also play an increasingly important role. Many investors wish to align their portfolios with responsible investment principles. ESG-aligned ETFs and actively managed funds provide options for incorporating environmental, social and governance criteria into retirement planning.

How can individuals invest effectively for retirement? In short: by starting early and following a clear plan. Building retirement savings should ideally begin at a young age, with a consistent portion of income set aside over time. A balanced mix of return-oriented and defensive investments — aligned with personal risk preferences and life stage — forms the foundation of a resilient long-term strategy.

During the accumulation phase, equities and other growth-oriented assets can play a significant role, as they offer return potential and support inflation protection. Over time, and particularly as retirement approaches, the focus should gradually shift toward capital preservation and stability. A diversified approach, for example through multi asset strategies, helps reduce concentration risks and can support smoother long-term portfolio development.

Whether investors choose passive building blocks such as index funds or opt for actively managed solutions ultimately depends on personal preferences. The key is to take action: every euro invested for retirement contributes to financial independence later in life. With a thoughtful investment strategy and regular review, individuals can build a solid foundation for their financial future. Those who seek broad diversification combined with active portfolio management will find further information within our multi asset solutions, designed to accommodate different risk profiles and investment objectives.