The third phase of life, from working life to retirement, also affects the financial situation. New pensioners must review their investment strategies and adjust them if necessary.
The thought of retirement makes many working people happy. However, it also means having to reorient yourself and structure everyday life differently, because priorities shift when you retire. Where the focus used to be on work, in everyday life as a pensioner it may be on the hobbies you love, the grandchildren, traveling or the garden and your own home.
Social and emotional change is one thing. Something else, highly relevant, is the financial adjustments. The income from work is lost, but the monthly benefits from the first and second pillars are paid. Are these benefits enough for a carefree retirement? Not at all. There is an income gap for most of them. Anyone who started making private provisions early on can close this gap of 20 to 30 percent in excess spending.
Clarify your finances after retirement
“60 is the new 50,” many people say. In fact, retirees are much more energetic today than they used to be. You are fit, and adventurous and still have numerous plans and goals. Therefore, assets should ideally continue to grow in retirement so that retirees can maintain their accustomed standard of living and enjoy their time. Maybe the finances are even enough to fulfill a long-awaited dream. It is therefore important to plan the financial resources well. Anyone who has already invested their assets in financial investments before retirement should review their investment strategy.
A financial assessment serves as the basis. The income is compared to the expenditure budget. The income gap mentioned is shown. It is also checked whether the standard of living can be maintained. It is highly advisable to carry out such a status assessment years before retirement.
With the layout, the consideration of the assets, and the knowledge of the amount of the income gap, the available money is planned as follows:
- The so-called consumption part aims to cover the annual income gap for the first five to ten years after retirement.
- The growth part comes into play when the consumption part is used up.
Invest money strategically: Shares and Bonds
The growth part and the consumption part require different investment strategies. Because the more short-term the money has to be available for everyday expenses, the more important investments with low exchange rate fluctuations are. On the other hand, investors should invest the money that will only be needed after a few years in a more risk-averse manner in order to potentially obtain higher returns.
For the consumption part, it is important that the funds are liquid – i.e. easily and quickly available. Investors should therefore choose a conservative investment strategy – for example with an account solution or investments in fixed-interest bonds (UK bonds 2022), defensive shares, or fund solutions. Although these yields less return, the forms of investment are much safer.
Investors with a longer investment horizon invest in the growth part. This also allows them to invest in more volatile assets like stocks and enjoy potentially higher returns. Important here: Don’t put everything on one “stock market horse”. Diversification, i.e. the spreading of risks across different forms of investment.
Anyone wishing to invest their assets should seek professional advice. Because with the right, early planning, and the resulting investment strategy, nothing stands in the way of enjoying retirement financially.