Invest pension capital: What should you do after withdrawing your lump sum?
Investing pension fund money correctly
Those who withdraw their pension capital assume responsibility for its investment and for financially safeguarding their standard of living in old age. The aim is to reconcile regular income and wealth preservation in the long term with responsible risk management.
However, this responsibility does not have to be borne alone. Our many years of experience in managing the free pension capital of our clients have confirmed this: Early planning, a long-term investment strategy and close support are crucial for a relaxed retirement.
However, the lump-sum withdrawal also opens up numerous new advantages and design options.
Advantages of a lump-sum withdrawal from the pension fund
The challenge after the capital withdrawal
A new phase of financial planning begins with the capital withdrawal.
The focus is on four objectives:
- Preservation of assets
- Regular income
- Protection against inflation
- Control of investment risks
Pension assets should generate income over many years and at the same time maintain their real value. A well thought-out, long-term investment strategy and regular risk management are crucial to achieving these goals in the long term.
What you should look out for when investing your pension capital
Adapt your investment strategy to your stage of life
Even in retirement, there is still a long-term investment horizon. The investment strategy should therefore be tailored to your stage of life, income requirements and life expectancy.
Ensuring sufficient liquidity
Not all pension assets should be invested. A sufficiently large liquidity buffer as a reserve is important to ensure that there is always enough liquidity for current expenses and for unexpected events in retirement.
Targeted risk management
A balanced asset allocation forms the basis of a sustainable investment strategy. The aim is to take market risks in a controlled manner while maintaining the purchasing power of the assets in the long term in order to achieve a good performance with as little risk as possible.
Cost-efficient and transparent asset management
As pension capital usually remains invested for decades, the total costs are of crucial importance in addition to the investment strategy and risk management. Due to the compound interest effect, these have a significant influence on your performance and therefore on the development of your assets. Reliable and transparent asset management is essential in order to maintain an overview at all times.
Considering taxes and estate planning
A holistic approach allows you both tax advantages and an easier transfer of assets to the next generation. For this reason, investments, taxes and estate planning should be considered in an integrated manner.
The so-called three-pot model has proven its worth here. It helps you to find your bearings and structure your assets in the best possible way.
The 3‑pot strategy
The 3‑pot strategy helps to structure pension assets sensibly according to liquidity, income and long-term growth. If you think through the model for your own situation at an early stage, you will create a good basis for sound investment decisions in retirement.
Pot 1 – Liquidity pot: All regular income such as earned income, pensions and rental income flows into this pot. Current expenses are paid from this pot.
Pot 2 – reserve pot: This pot serves as a buffer or safety pot in the event that liquidity is insufficient or your investments are in an unfavorable market phase. This means you do not have to sell your equity positions at unfavorable conditions and can still achieve your goal. It is structured in such a way that the money can be accessed immediately or at short notice. Savings accounts, call accounts and short to medium-term fixed-term deposits are used for this purpose. Depending on what makes sense given the interest rate level.
Pot 3 – Investment pot: This pot has the task of working for you and generating annual income or growing to the desired target in order to then fill the reserve pot or be withdrawn to cover expenses if necessary. It is important here that sufficient buffer is also planned in the risk appetite for the investments.
A practical example
When withdrawing capital from a pension fund, the customer usually has the following goal in mind: his free capital should work for him, because he needs or wants to live off the income from his securities. Asset growth with regular annual dividend and interest payments should cover their expenses. In wealth management, the AHV pension and other pension payments etc. would then be in the liquidity pot. Part of the money paid out by the pension fund is held as a security reserve in the reserve pot and the other part can then be invested.
Advantages of asset management with Tareno
Capital withdrawal
Special advantages for vested benefits assets
Professional management of free pension capital
Investing pension capital requires more than just selecting individual investments. A clear strategy, ongoing support and planning that is tailored to your personal situation are crucial.
Our approach at Tareno includes:
- Analysis of your overall asset and income situation
- Support in deciding between pension and lump-sum withdrawal
- Individual investment strategies for retirement
- Focus on returns, security and costs
- Ongoing support from personal contacts
- Independent asset management without own products
- Your assets remain with your existing bank
Capital withdrawals open up new opportunities, but also entail responsibility. Professional support helps you to take advantage of opportunities, control risks and make the best long-term use of your pension assets.
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