Pension investment strategy based on age

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axemick2

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Hi All,

I had a quick look back through discussions in the pensions forum but I could not find what I was looking for - apologies in advance if I missed it.

My question is around investment strategy based on age/no of years to retirement. I currently have 2 pension plans with Irish Life:
1. My active DC plan , fund value €94,756. Monthly contributions 5% me & 5% employer, 5% AVC which totals €1,468 p/m
2. Unit linked PRB, fund value €8,683.65

1. Active pension investment breakdown:
€12,264.43 - EMPOWER Growth Fund - risk rating 4
€82,492.50 - EMPOWER High Growth fund - risk rating 5

I'm 46 years old so surely another 20 years to retirement. Should someone of my age be investing in higher risk investments or staying as I am. I can't seem to figure this out by my research.

Any advice would be appreciated.
 
You really need to try and look at things from a different angle.
You are currently looking at your current sum and contributions and wondering what fund to invest in. Are you just after the highest level of growth or after more Security.
Ideally you should try work backwards from retirement. Simplifying it right down, what lifestyle do you want, what income is needed to have that lifestyle and then what level of pension is needed to give you that.
If you find you need x amount pension pot then to achieve that well what level of return will you need to get to that. You may find you need to increase your contributions to achieve this.

Using the 4% that is often used in the industry, you need a pot of 1mil to achieve 40k per year. Is 40k a year enough if your used to earning over 100k a year or is 40k too much. That's up to you.

Personally if I was you I prob would put it in a higher risk fund. But thats just my me.
 
axemick2 said:
I'm 46 years old so surely another 20 years to retirement.
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Retirement age is irrelevant.

You will live another 20 or 30 years beyond that, so your investment horizon is up to 50 years.

When you retire, you will just change the label on your fund from "pension fund" to "ARF" and 25% will go into "my own money". Both should still be invested fully in equities at that stage.

Retirement age had some relevance when you had to buy an annuity on retirement. But that is no longer a requirement, so it's no longer relevant.

Brendan
 
Brendan Burgess said:
When you retire, you will just change the label on your fund from "pension fund" to "ARF" and 25% will go into "my own money". Both should still be invested fully in equities at that stage.
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In practice, two things tend to happen for most people when they retire...

(1) They want to spend a chunk of their lump sum, rather than reinvest it all in equities.

(2) They become more risk-averse, as it's a big change to have no salary coming in at the end of every month. So a lot of people are less likely to be comfortable having their ARF in 100% equities post-retirement, as the potential volatility is too much for them to be comfortable with, if the ARF is their primary source of income in retirement.
 
Inflation at 6% for 20 years will come to be recognised as a huge, unnoticed risk by a lot of pensioners with their penson pot in cash or bonds in 10 or 15 yearswhen the value has been reduced by half
 
jpd said:
Inflation at 6% for 20 years will come to be recognised as a huge, unnoticed risk by a lot of pensioners with their penson pot in cash or bonds in 10 or 15 yearswhen the value has been reduced by half
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Adjusted for inflation, global equities lost roughly half of their value in the 1970’s.

Equities are not magically immune from inflation.
 
how long did it take in the 1970s to get back to even? basically if you had some cash set aside and/or still working and didn't panic and sell, how long did you have to wait to get out of the hole?
 
jpd said:
Inflation at 6% for 20 years will come to be recognised as a huge, unnoticed risk by a lot of pensioners with their penson pot in cash or bonds in 10 or 15 yearswhen the value has been reduced by half
Click to expand...
None of my retired clients have all their ARF in cash and bonds. They never have. Maybe only those not getting any advice will have a strategy like this.


Steven
www.bluewaterfp.ie
 
@axemick2 it might be useful to list the funds you have available to you apart from the ones you're already invested in.

You ask if you should be invested in "higher risk" funds and list the risk rating of your invested funds. Someone with more knowledge than me will likely be able to tell us exactly how these risk ratings are calculated, but you should think critically about what these risks are in relation to your goals.

In my case, I'm 100% invested in a Global Equities fund. Because it's all equities, it is classified as one of their highest risk products and would be expected to significantly fluctuate in value over time (as it is doing right now) and therefore is classified as "risky". However to me, the real "risk" is poor investment performance after fees when it comes to drawdown - which I believe is much more likely in the "lower risk" managed funds, which are high fees and dependant on the investment decisions of some fund manager in Irish Life or similar.
 
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