How to use private investments in your retirement plan

Growing up, my parents were proud members of their respective unions. I witnessed their deep belief in the promise of the American dream, which included a secure retirement after decades of hard work. That promise materialized for them: They were able to send me to college and save for retirement, thanks to the steady returns of their pensions, which had access to private-market investments.

For many families, that story captures a quiet truth about retirement security. Defined benefit pensions did more than provide a paycheck in later life. They pooled contributions across long horizons, diversified across public and private assets, and gave ordinary workers indirect access to specialist managers in private equity, private credit, infrastructure, and real assets. That structure absorbed volatility better than any individual household could, and it matched illiquid holdings with a very long liability: decades of future retiree payments. The lesson is not nostalgia. The lesson is design. When a plan is built around the timeline of the goal and the cash flows needed to honor it, higher-return and less liquid assets can be used responsibly. When a plan is built around short-term performance or anxiety, the same assets can introduce stress at exactly the wrong time.

Today most people do not have a traditional pension. They manage defined contribution plans, brokerage accounts, and perhaps some property. That shift changes the work your plan needs to do. You are the chief investment officer of a single household fund. The fund has a unique liability schedule, which is your future spending. The fund has a risk budget, which is your tolerance for loss and your capacity to recover from it before you need the money. The fund has a liquidity profile, which is the rhythm of your life: mortgages, kids, aging parents, education, and health costs that do not politely wait for market cycles. Private assets can still belong in that world, but they must be placed correctly inside the plan. In practice, that means anchoring everything to time.

Time is the organizing principle that most investors skip. Before you ask whether an asset is attractive, ask when you might need to turn it into cash. If your first major draw is more than a decade away, your plan can accept more illiquidity in a carefully sized sleeve. If you are within five years of retirement, the same allocation can be unhelpful because it competes with the near-term need to fund spending without forced sales. Pensions handled this by mapping liabilities year by year and letting long-dated cash flows support long-dated assets. You can adapt the idea at a personal level with a simple habit: match horizon to vehicle, then size the vehicle to the reliability of your cash flow.

Start with your essential spending runway. Calculate how many years of required expenses you want secured in reliable, liquid assets. Think of this as your stability engine. Its role is to cover the next few years without drama. This part of the portfolio is not trying to win. It is trying to let you sleep. The next layer funds medium-term goals, where measured risk and moderate volatility are acceptable and where rebalancing can do real work. Finally, the growth engine targets long-horizon returns that outrun inflation across decades. This is the only place where illiquid holdings may fit. Described this way, private assets are not a headline. They are one tool in the growth engine, used only after stability and medium-term funding are clearly in place.

What are you actually buying when you buy a private asset through a fund or a feeder? You are buying a stream of cash flows that is less tied to daily markets, overseen by a manager running a repeatable process, and packaged with a legal structure that limits your ability to exit on demand. You are also buying dispersion. The difference between a top quartile and a bottom quartile private fund is wider than in most public strategies. Fees are higher. Valuations arrive on a delay. Capital calls and distributions follow the manager’s schedule, not yours. These features are not defects. They are part of the reason the return premium exists at all. But they require your plan to carry more of the planning work up front.

If your employer plan or personal platform offers diversified vehicles that include private credit, infrastructure, or secondary funds, look closely at how they manage pacing. The best structures do not simply collect your money on day one and invest it all at once. They commit over time, smoothing entry points across cycles. They also show how unfunded commitments will be handled, because a capital call that lands when your household cash is tight can undo the comfort that diversification was meant to provide. In a pension, the payroll never stops, and contributions continue even during downturns. In a household, contributions can pause when life intrudes. Build your allocation with that reality in mind.

Liquidity is not just the ability to sell. It is the ability to fund decisions you care about without compromise. If you may change jobs, relocate, start a business, or support family members over the next few years, keep your long-horizon sleeve conservative in size. A small, diversified allocation that you can hold through a full cycle is healthier than a large position that you abandon midway. If you are an expat with multi-jurisdictional accounts, confirm whether the structure is portable and what tax reporting it requires in each country, since complexity can become a hidden cost. If you are in a system with a strong mandatory pillar, such as Singapore’s CPF or Hong Kong’s MPF, recognize that those pillars already perform some of the stability work in your plan. That can free your voluntary investments to tilt slightly more toward long-term growth, but only if your near-term cash needs are already funded.

Performance is only part of the story. Sequence matters. Two investors holding the same average return can end up with very different outcomes if one suffers a drawdown just before withdrawals begin. Pensions insulated participants from this risk by pooling assets and smoothing payouts. You can approximate that smoothing by building a withdrawal runway. Park one to three years of expected withdrawals in low-volatility assets, then refill that bucket when markets give you favorable opportunities. This keeps growth holdings, whether public or private, from being liquidated at the worst possible moment. It also gives your higher-return assets time to recover and compound, which is where most of their value is created.

Manager selection deserves plain language. In public markets, broad, low-cost exposure usually beats high-fee promises. In private markets, manager skill and access matter more, but that does not mean everyone needs a complex allocation. If your plan offers a diversified fund-of-funds with transparent fees, a clear strategy across vintages, and sensible pacing, that can be enough for the portion you are comfortable allocating. If your only options are narrow or opaque, it is acceptable to skip them and focus on a robust public market core. The core does most of the compounding work for most investors. A thoughtful core is not a consolation prize. It is the foundation that makes everything else possible.

Costs and governance are rarely exciting to discuss, yet they are the levers that protect outcomes. Read the fee stack. Ask how carried interest and fund-level fees interact. Understand whether your plan provides independent oversight, and how conflicts are handled when affiliated products are on the menu. Pensions employ teams to do this work. Households do not. Your best defense is to only use structures you can explain back in two or three sentences without jargon. If you cannot do that today, press pause, focus on your core, and return to the idea later with more clarity.

Tax and wrapper choices shape real-world net returns. Retirement accounts, ISAs, SRS, and similar vehicles can shelter compounding, but they also limit flexibility. That is a fair trade when the horizon is long and you control your contributions. It is a poor trade when you anticipate large life changes in the near term. Treat tax efficiency as a second-order optimization after liquidity and time horizon. If you get the order wrong, you can end up rich on paper and constrained in life.

It helps to translate all of this into a single conversation you can have with yourself or your partner. Start by writing down the age at which you intend to take your first withdrawal and the annual amount you would like to cover from your portfolio. List the non-negotiable costs in the first five years of retirement. Note any known events in the next decade that might require large cash outlays. With those numbers in front of you, allocate your first layer to cover near-term needs. Fund the medium layer to handle variability and to give you rebalancing opportunities. Only then decide whether a private allocation belongs in the growth layer, and if so, at what modest size. Revisit this once a year, or when life changes in a meaningful way.

There is a quiet confidence that comes from aligning assets to time. It does not rely on calling markets. It does not require chasing the latest strategy. It is simply matching the character of each dollar to the job it needs to do. In that light, private assets look less like a trend and more like a tool you might or might not use, depending on your plan. Some clients never need them. Others use a small, disciplined sleeve for diversification and potential return enhancement. Both choices are valid when they follow the same rule: stability first, then growth, then optionality.

You may still wonder whether you are missing out if you skip private funds entirely. The honest answer is that long-term success is driven more by savings consistency, low cost public diversification, and behavior during drawdowns than by any single sleeve. If a private allocation helps you stay invested and makes your plan more resilient, it can be appropriate in a measured size. If it introduces worry or complexity that discourages regular contributions, it undermines the very outcome it is meant to support. A sound plan should feel both serious and sustainable. It should respect your capacity to hold through a cycle and your need to make decisions without pressure.

As a final check, ask yourself three questions. Will this allocation make it easier or harder to fund my next five years of spending without forced sales. Do I understand the pacing of commitments and distributions well enough to plan cash flow around them. If markets became difficult for two years, would I still be comfortable holding this sleeve to its intended horizon. If you can answer yes, you are thinking like a steward of your future income, not a shopper of products.

The old pension model was not perfect, but it got one thing right. It placed the promise first and the portfolio second. It defined the job, then sourced the tools. You can do the same at a household level. Build the promise you want to keep for your future self. Fund the next few years so that you can sleep. Let the rest of the portfolio work quietly in the background. If you choose to include private-market investments in pensions through modern plan options, do so because the timeline supports it and the structure is clear. The smartest plans are not loud. They are consistent. And consistency, aligned with time, is still the most reliable path to a retirement that feels earned and lived, not just financed.