Is cash the safe haven or a missed opportunity?

Published in Business Eye in July 2025. 

For most of our lives, we work towards building wealth to sustain us throughout retirement. Our regular monthly income creates a sense of financial stability, making it easier to plan expenses, save and manage cash flow. But then comes retirement—the familiar rhythm of monthly earnings disappears and is replaced by the challenge of managing funds that must last. The prospect of fluctuating investments introduces an unfamiliar sense of uncertainty. How do we ensure that years of hard-earned savings continue to support our lifestyle without the reliability of a salary?

Retirement planning isn’t just about having enough savings, it’s about managing your money in a way that sustains you. If we knew exactly how long we would live, how much we would spend, and how markets would perform, the answer would be relatively straightforward. Unfortunately, reality is much more unpredictable.

Due to this uncertainty, many consider holding a large portion of their asset base in cash. It’s perceived as low risk, secure, accessible and predictable. While this approach can be suitable for a portion of your funds, it’s often not the best strategy for all of it. Cash isn’t without risk; it simply carries a different kind. We are living longer, prices are increasing, and interest rates change. Perhaps its greatest risk though is the opportunity cost—the potential gains forfeited by not choosing an alternative option. It is only looking back in hindsight that the impact of missed opportunities becomes clear.  

Having cash reserves provides accessible funds for short-term needs. It helps cover planned withdrawals or unexpected expenses, without being forced to sell long-term investments at a loss during market downturns. However, longer term investments such as equities and bonds offer the prospect of stronger compounding growth and have historically outperformed cash returns.

Interest rates have varied significantly over the years—from 6.00% in early 2000 to historic lows of 0.10% in 2020, then climbing to 5.25% in August 2023. At the time of writing, the UK base rate stands at 4.25%. Given all the uncertainty in the world and the relatively attractive interest rates, does it not make sense to stay in cash?  Perhaps, but there are important factors to consider first.

Inflation erodes purchasing power over time. Your expenditure level may appear sustainable when you begin withdrawing, but could look significantly different in 10, 20 or 30 years. Therefore, it’s crucial that your retirement fund generates growth to at least keep pace with inflation. Interest rates are high because inflation is high. A return of 4.25% is attractive, especially when your funds won’t fluctuate in value. However, what seems appealing today may not be sustainable in the long run. Interest rates have been declining since 2024 and the market expects that trend to continue throughout 2025. Locking funds into cash alone may impact long-term financial security.

While all investments carry a degree of uncertainty and volatility, an overly cautious approach may result in missed opportunities for substantial long-term growth. For instance, an initial sum of £10,000 placed in a UK bank account at the start of 2000 could have grown to approximately £18,000 by the end of 2024. In comparison, the same amount invested into the global stock market would be worth £52,690. This highlights the power of compounding and long-term investing, showing that while cash offers stability, investing can provide far greater growth over time.

For any investor, but especially in drawdown, a well-structured financial plan combining cash reserves, fixed-income, and equities is key. This approach ensures you have the income you need, when you need it, providing financial stability while allowing your assets to sustain you throughout your lifetime. Cash reserves are important, but relying entirely on interest-based savings could mean missing out on higher returns that are essential to maintaining retirement income for decades.