Should you hold bonds as you approach retirement?
Bonds earn their place in a portfolio approaching retirement by reducing the size of a fall in the years when a fall does permanent damage. What they do not do is protect against inflation, and 2022 demonstrated that gilts and equities can fall together when the cause is rising rates.
- The job: reducing the depth of a fall in the years withdrawals make losses permanent.
- The cost: a lower expected return across a retirement that may run thirty years.
- The 2022 lesson: gilts and equities fell together when rising rates were the cause.
- The alternative: cash for near-term withdrawals, equities for the long tail.
01 What bonds are for in a retirement portfolio
The case for bonds near retirement is narrow and real: they reduce the depth of a drawdown in the years when selling into a fall does permanent damage. A portfolio that falls 20% instead of 35% liquidates far fewer units to produce the same income, and those units stay in for the recovery.
That is a sequence-risk argument rather than a return argument. Over thirty years equities have historically produced more, and a retiree holding a large bond allocation throughout is paying for protection long after the window in which it mattered.
Which is why the useful shape is a temporary one: more bonds in the five years either side of the retirement date, and a drift back toward growth assets once the early-withdrawal window has passed.
Shows: the fall in a portfolio at two different equity weightings, and the difference in units a fixed withdrawal has to sell. Ignores: bond returns, inflation, charges, and any recovery after the fall.
On the defaults above, the worked example shows £102,400. A fully invested equity portfolio would fall £120,000; this mix falls £102,400 — the difference is what the bonds bought you.
Source: FCA consumer information
02 What 2022 showed
Gilts and equities both fell sharply in 2022, and long-dated gilts fell further than equities. The usual diversification story — bonds rise when equities fall — depends on the fall being caused by a growth shock. When it is caused by rising interest rates, both fall together.
That is not an argument against holding bonds; it is an argument against holding them for the wrong reason. A retiree who bought long-dated gilts expecting them to be the stable part of the portfolio discovered that duration is a risk in its own right.
Short-dated bonds and cash behaved very differently in the same period. Where the objective is to have money available without selling equities, the maturity of what you hold matters more than whether it is a bond at all.
Source: Bank Rate and how it works
03 Inflation is the other risk
A conventional bond pays a fixed coupon, so a decade of high inflation erodes it exactly as it erodes any other fixed income. For a retirement that may run thirty years, inflation is the risk that does the most cumulative damage, and bonds do not address it.
Index-linked gilts do, at the cost of a lower yield and considerable price volatility if held through rate changes rather than to maturity. They are the honest inflation hedge in the bond universe and they are not a stable asset in the short run.
Equities have historically outpaced inflation over long periods, which is the reason a thirty-year retirement plan cannot be built entirely on bonds. The purchasing power question is what sets the floor on how much growth the portfolio still needs.
Source: Inflation and price indices
The glide path most people are sold treats bonds as the safe asset for the rest of your life, and that is a thirty-year drag bought to solve a five-year problem. Hold more of them either side of the date you start withdrawing, because that is the window where a fall becomes permanent, and let the allocation drift back afterwards. And be specific about which bonds — 2022 taught a lot of retirees that long-dated gilts are not a substitute for cash, and the ones who had short maturities or actual cash for their near-term withdrawals barely noticed.
FAQ
Do bonds protect against inflation?
Conventional bonds do not — they pay a fixed coupon that inflation erodes like any other fixed income. Index-linked gilts do, at the cost of a lower yield and real price volatility if you hold them through rate changes rather than to maturity.
Why did bonds fall in 2022?
Because the fall was caused by rising interest rates rather than by a growth shock. Bond prices move inversely to yields, so long-dated gilts fell further than equities, and the usual diversification relationship did not hold.
How much should I hold?
Enough to reduce the depth of a fall in the years around the start of withdrawals, and less thereafter. The specific number matters less than the shape: a temporary increase around the retirement date rather than a permanent allocation held for thirty years.
Sources
Regulator references
- FCA consumer information · Financial Conduct Authority · 2025The regulator's own consumer guidance on the products discussed here.Last verified: 2026-09-07
- Bank Rate and how it works · Bank of England · 2025The policy rate that drives the mortgage and cash comparisons here.Last verified: 2026-09-07
- Inflation and price indices · Office for National Statistics · 2025The published index this post's real-terms figures are deflated by.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.