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Created on 06.03.2019

Investing after retirement: what you need to bear in mind

The time has come for you to say goodbye to your working life and retire. You can now pursue your dreams, you will finally have time for new tasks, hobbies, your family or anything you simply haven’t had the time for until now. This new part of your life and the circumstances this puts you in also have an effect on your investment strategy. This is because people who have retired should invest differently to those in the middle of working life.

You need to be well prepared for retirement, and it is essential to start preparing early on so that you can carry on enjoying your accustomed standard of living when you are older. This should involve detailed pension planning, optimizing your private pension and your occupational pension as well as deciding whether you would like to receive a pension, all your retirement capital or a combination of the two as far as your pension fund assets are concerned. You should also come up with a spending budget for when you retire. Find out more about the best ways to plan for retirement in the article “I’m drawing close to retirement – what do I need to know?”.

Once you retire, it is time to adapt your investment strategy

Anyone who is no longer working ought to invest their money differently to how they invested prior to retiring. In other words, say goodbye to building up assets, which is often the main investment goal people have before retirement, and hello to maintaining your standard of living. The sort of investment strategy that is right for your retirement depends on a number of factors, most of all your financial situation. This will also have an impact on your risk capacity, for instance. Your investment horizon will also shrink once you have retired, which will in turn have an impact on your investor profile.

Whether you are potentially planning on taking early retirement, whether you are looking to retire on reaching statutory retirement age or whether you would like to (or have to) continue working for longer also play a role when it comes to defining your investment horizon. Even your retirement planning has an effect on your future investment strategy. After all, the sum of money you can invest also depends on whether you are receiving a regular pension, or if you want the retirement capital you have saved up to be paid out in one go or on a staggered basis. This will determine how much money you have available to invest. As a general rule of thumb, though, even as a pensioner you should only invest those assets you do not immediately need to support yourself. 

A conservative strategy for ongoing asset depletion

Your mandatory pension and state pension in pillar 1 as well as your occupational pension in pillar 2 form the basis for your retired life. The payments you make into your mandatory pension are usually not enough, however, to continue funding the standard of living you want to keep up once you have retired. By making regular payments into retirement planning solutions, investment solutions or savings solutions as part of your private pension (pillar 3a/3b), you will build up retirement assets and close this financial gap. On retiring, you liquidate the assets you have saved up so you can live off them (asset depletion). Anyone who is dependent on this ongoing asset depletion should opt for a more conservative investment strategy. If you do this, you can only accept value fluctuations to a limited degree. After all, you are ultimately investing with the aim of drawing a secure income from your assets every month from when you start your well-deserved retirement, and ideally until you reach a very old age.

Riskier investments are possible

If you have long-term plans or you are thinking about retiring early, you also have the option of dividing your investments into two parts, even if your assets are being depleted on an ongoing basis: short-term (and safer) investments, and longer-term, riskier investments. Safe, short-term investments should cover the first ten years of your retirement, for instance, and are intended for consumption. You can then go about investing your second set of assets with a long-term investment horizon in mind once you have retired, and here you can take more risks and focus on growth. Money from this investment comes into play after the first ten years have passed, and it should maximize your available assets until the end of your life. 

Enjoy your retirement whilst ensuring that you plan for the unexpected

And last but not least: the new-found freedom you have when you retire might well tempt you to set aside fewer reserves and provisions. However: even at this stage of your life, unexpected events can still surprise you. Maybe your car will suddenly break down, you might receive an expensive doctor’s bill, or your mortgage interest rates could increase. So remember that, even as a pensioner, you need to have financial backup for these kinds of events that you can draw on quickly and easily. At the end of the day, financial security still needs to come first even when you retire. 

Keep making the right investments

You should only adapt your investment strategy in the event of a significant change in circumstances, and retirement is just that. So be sure you are proactive about adapting your personal investment strategy. Remember: it is well worth remaining an investor even at this stage in your life. Your living circumstances may change, but you can still do more with your money even when you’re older. Regardless of whether you decide to change to a safer strategy or whether you can and want to take more risks, the same rule applies: this new-found freedom and the extra time you now have are best enjoyed if your financial concerns are kept to a minimum. 

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