"Investing in retirement: Between the hammer of inflation and the anvil of the market"
Interest rates are back, but for retirees, overnight money and government bonds are not enough to secure purchasing power over 20 years and more. Retirement portfolios cannot avoid capital market risks, but they must be well structured, according to an analysis by Ali Masarwah, fund analyst and managing director of the consulting firm envestor.
February 24, 2026. FRANKFURT (envestor). Anyone who retires at 65 can look forward to a long retirement. Statistically, a 65-year-old man in Germany will live for another 17 to 18 years, while a 65-year-old woman has around 20 years ahead of her. For investing in retirement, this means that the investment horizon does not end when you retire. Portfolios that rely solely on call money and government bonds are too defensive for this – the biggest risk is the creeping loss of purchasing power. But older investors need to consider the consequences of capital market risks much more thoroughly than they did when they were building up their assets.
Today, safe investments represent the lower limit of what is necessary. Call money and short-term deposits typically yield 2 percent per year, while ten-year government bonds currently yield less than 3 percent. This roughly offsets inflation, but not much more. Those who want to maintain their standard of living in retirement will find it difficult to avoid additional sources of return: stocks yield 8 to 12 percent per year in the long term, making them the highest-yielding form of investment available to us. So should we put everything into stocks, even in retirement? Let's explore this question with two sample calculations.
Two portfolios with different return sequences
Two stock portfolios have the same goal: to finance a 20-year retirement period for two 65-year-old female retirees. Both portfolios have the same conditions—€150,000 in assets, planned distributions of €12,000 per year, and an impressive annual return of 10 percent over 18 years. However, two crashes of 20 percent each occur in two years. The only difference between the portfolios is that the crashes occur at different times – with serious consequences, as we will see.
The first portfolio is hit in the very first year of retirement: after the 20 percent crash and the first withdrawal, €150,000 becomes €108,000. From year two onwards, the portfolio returns to a plus 10 percent per annum, but only until year 5. In the second crash, the assets are reduced to €71,200. From then on, the portfolio has no chance. Portfolio 1 collapses after just 14 years, as the table below shows.
| Year | Initial value in euros | Return in percent | Return in euros | Final value after withdrawal in euros |
|---|---|---|---|---|
| 1 | 150,000 | -20 | -30,000 | 108,000 |
| 2 | 108,000 | 10 | 10,800 | 106,800 |
| 3 | 106,800 | 10 | 10,680 | 105,480 |
| 4 | 105,480 | 10 | 10,548 | 104,028 |
| 5 | 104,028 | -20 | -20,805.60 | 71,222.40 |
| 6 | 71,222.40 | 10 | 7122.24 | 66,344.64 |
| 7 | 66,344.64 | 10 | 6634.46 | 60,979.10 |
| 8 | 60,979.10 | 10 | 6097.91 | 55,077.01 |
| 9 | 55,077.01 | 10 | 5507.70 | 48,584.71 |
| 10 | 48,584.71 | 10 | 4858.47 | 41,443.19 |
| 11 | 41,443.19 | 10 | 4144.32 | 33,587.51 |
| 12 | 33,587.51 | 10 | 3358.75 | 24,946.26 |
| 13 | 24,946.26 | 10 | 2494.63 | 15,440.89 |
| 14 | 15,440.89 | 10 | 1544.09 | 4984.98 |
| 15 | 4984.98 | 10 | 498.50 | -7516.52 |
The holder of Portfolio 2, on the other hand, is doing well. Her portfolio grows in the first few years – despite withdrawals. After one year, the portfolio stands at €156,000, and after four years at just under €164,000. In year 5, the crash and withdrawals reduce the assets to €119,000. But the 10 percent annual return on shares largely compensates for the subsequent withdrawals – but only until year 15. The portfolio falls from €118,700 to €83,000 at the beginning of the 16th year. From then on, the withdrawals take their toll. But at least €24,000 remains in the portfolio at the end of the 20th year. Mission accomplished? Yes, but there is a bitter aftertaste. More on that below.
Let us first note that the differences between the two scenarios are significant. The pensioner in example 1 has to start looking for a job at the age of 80. That is harsh. So did pensioner number two do everything right? Not at all. She was simply lucky that her stock portfolio did not take a hit early on. And if she lives to be older than 86 or 87, she too will have to look for a job. In this respect, portfolio 2 has met the minimum requirement and lasted 20 years, but what if the money has to last another ten years?
The reference to sequence risk is important. It makes an enormous difference when losses on the capital market hit income portfolios. But because late losses are also painful, it is important to give portfolios a structure that is so solid that sequence risks are systematically minimized without reducing the potential returns too much.
A sustainable income portfolio does not rely on a single asset class. Those who remain loyal to equities during retirement are on the right track. But as our analysis has shown, it is the dose that makes the poison. Bonds are an important complement to equity risks because of their significantly lower risk of loss. However, this is only true if they yield more than overnight money and government bonds. Corporate bonds and higher-yield credit strategies with the shortest possible maturities boost bond performance without exposing investors to excessive and concentrated capital market risks.
A satisfactory return cannot be achieved without higher volatility. Investors should therefore continue to invest in stocks in their old age – but without neglecting to give their retirement portfolios the necessary, sustainable structure.
By Ali Masarwah, February 24, 2026, © envestor.de
About the Author
Ali Masarwah is a fund analyst and managing director of envestor.de, one of the few fund platforms that pays cashback on fund distribution fees. Masarwah has been analyzing markets, funds, and ETFs for over 20 years, most recently as an analyst at the research firm Morningstar. His expertise is also valued by numerous financial media outlets in German-speaking countries.
This article reflects the opinion of the author, not that of the editorial team at Deutsche Börse. Its content is the sole responsibility of the author.
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