When Mike Lithgow started saving into a pension at 40, he assumed that he would be retired by 60.

He is now 70, and his plans have changed. He has, controversially, just increased the risk he is taking with his £102,000 pension pot by increasing his investment in shares.

Lithgow, a semi-retired film editor from Penryn in Cornwall, feels that he can afford to take more risk because he is still working and also has about £240,000 savings from the sale of two buy-to-let properties. His wife, Belinda, 67, has a teacher’s pension and they both get a state pension, giving them a total pre-tax income of about £55,500 a year.

They look set for the lifestyle they want, but are still pushing for better returns from Lithgow’s pot. Many others are not on track for anything like as comfortable a retirement. The average pension pot holds just over £20,000, according to the firm Pension Bee, while the wealth manager Evelyn Partners says you need about £795,000 for a comfortable retirement.

If you are not on track, you may want to take a leaf out of Lithgow’s book and take a few more chances with your savings — just make sure to keep a balance. Here’s what you need to know.

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The later you start saving, the more you need to set aside to hit your retirement target. You could take on more risk to grow your money more quickly, but this will also add volatility to your fund and could make things worse.

What level of risk you should take with a pension can be a tricky thing to work out. There are many factors to consider, including your age, when you plan to retire, the lifestyle you want and what other assets you have.

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If you plan to keep your money invested in old age but take an income from it through what is known as drawdown, there is usually less need to reduce the risk of your investments as you approach retirement. However, if you plan to buy an annuity (an insurance product that pays a guaranteed income for life) then any stock market falls in the years just before you retire could significantly reduce your pot and so the size of annuity income it will buy you.

Gary Smith from Evelyn Partners said: “Potentially you could need your pension to finance three decades of your life, so for those in drawdown a careful balance needs be found to ensure that there is enough exposure to equities so that the pot has some growth potential and will not be drained too quickly.”

Instead of buying an annuity at 60 as he had intended, Lithgow took the 25 per cent tax-free lump sum from his Prudential pension, used it to buy a boat and then transferred the remaining £106,000 to a self-invested personal pension (Sipp) held with the firm Bestinvest.

At first his fund was mostly in safer assets such as bonds, but is now about 80 per cent in shares.

For seven years he withdrew about £4,000 a year from his pot as income, increasing this to £7,000 a year after selling his two buy-to-let properties in 2022.

Despite this, investment growth has meant that his pot has managed to stay at a value of about £102,000. “This, added to our other sources of income, gives us a decent retirement without feeling that we are taking too much risk,” Lithgow said. “The fund has kept up pretty well despite our withdrawals.”

If you have some guaranteed income in retirement, for example from a defined benefit (also known as a final salary) pension or the state pension, you could take more risk with your other investments.

Helen Morrissey from Hargreaves Lansdown said: “Knowing you have guaranteed income gives you the flexibility to take more risk with a Sipp. In an ideal world, you have guaranteed income to cover your essential living costs and a more flexible income for discretionary spending.”

If you don’t have a defined benefit pension but would like a combination of security and flexibility, you could buy an annuity to cover your fixed costs and keep some of your pension invested to draw on as you need it.

One way to balance the risk is to diversify your portfolio so that it is spread across different assets. This helps to mitigate the potential impact of market volatility in a particular sector, because it is rare that all assets rise or fall at the same time.

As well as pension savings, you may have cash, property or other sources of wealth, which should not be forgotten when planning your retirement. If you have significant amounts in cash, for example, you could consider taking more risk with your pension because it would be offset by your lower-risk cash assets.

Riskier investment choices can often bring greater returns — although there are no guarantees. AJ Bell, an investment firm, found that £10,000 invested 10 years ago in the average fund holding 100 per cent stocks would today be worth £25,308.

If that same £10,000 was held in a balanced fund (which contain 40-85 per cent shares) then the average performance of that sector would have grown it to £17,049 over the same period. The average defensive fund (where shares make up 0-35 per cent of the fund), would have grown the £10,000 to just £12,664.

If the same performance continued for a further 25 years, the 100 per cent equity fund would be worth £101,891, the balanced fund would be likely to reach £37,954, and the defensive fund £18,048.

An often cited rule of thumb is that deducting your age from 100 tells you the proportion of your portfolio that should be invested in shares: for example, a 30-year-old would have 70 per cent in shares and a 60-year old would have 40 per cent. The rest should be invested in safer assets such as bonds.

The idea is that you can afford to take more risk when you’re younger because you have more time to ride out stock market ups and downs. But while this rule can provide some useful guidance, it has its flaws.

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Craig Rickman from the wealth manager Interactive Investor said: “This rule takes no account of your personal attitude to risk or investment experience. It also restricts holdings to shares and bonds, ignoring other assets such as commodities, property and cash, which can provide some useful diversification.”

Under auto-enrolment, all workers aged 22 and over who earn more than £10,000 are signed up to their company pension scheme. This means that most adults are now saving into a workplace pension.

Workers are typically put into a default fund that caters to the risk appetite of the masses. It is impossible for these to have the right risk/reward balance for everyone.

Tom Selby from the wealth manager AJ Bell said: “This might mean, for example, that some people in a default fund end up taking less risk in their younger years than would ideally be the case. They potentially miss out on some long-term investment growth.”

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Older-style “lifestyling” pension funds, which many savers will still be invested in, also tend to reduce risk as you approach your chosen retirement date — normally based on the assumption that you are planning to buy an annuity when you stop work.

“These lifestyling strategies can end up being completely inappropriate for those who plan to keep their funds invested,” Selby said.

You can change which pension fund you are invested in by logging into your account or calling your pension firm. You can also tweak your retirement date to avoid being lifestyled too early.

Portfolio risk is something that you should review frequently, particularly as you get closer to retirement. Some wealth managers have ready-made pension portfolios for different stages of life.

Hargreaves Lansdown, Britain’s largest wealth manager, for example, has two stages for its ready-made pension plan. The growth stage lasts until eight years before retirement and your money is invested in its multi-index moderately adventurous fund.

The fund has 84 per cent in what Hargreaves describes as higher risk funds, including tracker funds that follow equity market indices. The rest is in lower risk funds that invest in government and corporate bonds.

Eight years before your chosen retirement date, your money is gradually moved to a caution fund. This has 36.3 per cent in bonds and the rest in shares. The funds have a fee of 0.3 per cent on top of Hargreaves Lansdown’s platform charge of 0.45 per cent.

There will come a point when it makes no sense to take on risk, either because you have left it too late or you already have enough to achieve the retirement you hoped for. There is no point in adding risk simply because you want your pension pot to grow faster — you could end up with less than you planned for.