Investing money in old age: the right strategy

When you reach retirement age, it’s not only your personal life situation that changes, but also the basic conditions for structuring your assets. Your salary is replaced by an often lower pension or a lump-sum payment, which is often lower. This contrasts with expenditure, which doesn’t usually change very much, or is simply redistributed to other aspects of life. With a targeted investment strategy, you can avoid getting into financial difficulty and even increase your assets.

The life expectancy of the Swiss population is currently around 84 years and will continue to rise in the future. Most employees retire at the statutory retirement age of 65 (currently still 64 for women). This means that pensioners can enjoy their retirement for an increasing length of time – but they also need more capital to cover their expenses for longer. To ensure that life in old age corresponds to your previous standard of living when you were working, you should take a realistic look at your living costs after retirement.

The income from the OASI pension (pillar 1) and pension fund (pillar 2) is usually 30 to 40 percent below the last income before retirement. Prevent any future financial bottlenecks by analyzing your budget early on. This allows you to record your regular expenses and determine before you retire whether they are likely to rise or fall in the future. Expenses for daily needs, transportation and travel, leisure and sports activities are just as important to consider as the cost of housing and healthcare.

The amount you spend on your health will increase over the years, especially if you need assistance and nursing. The financial burden of taxes, ongoing mortgages and the inflation rate must also be taken into account.

When you retire, it makes sense to ensure that you gain the greatest possible advantage when transferring your retirement assets to your private assets. The choice between a lifelong pension and a (partial) lump-sum withdrawal will have a significant impact on your financial and asset situation later in life.

By planning your finances for the period after retirement, you can also decide more easily whether or not a proportion of your retirement assets should be paid out as a lump sum. You can choose once whether you would like to receive your pension fund assets in the form of a lifelong pension or a single lump-sum payment – or a combination of both.

If income exceeds expenditure, the decision is easier: your pillar 1 and pillar 2 pensions should be enough to cover current expenses, and you should have the rest paid out as a lump sum. This capital can be invested in the long term, spent on additional expenses or passed on to your descendants.

When deciding on an investment strategy, the main factors to consider are the amount of money you need from your assets and the extent to which the value of your securities portfolio can fluctuate without making you feel insecure as an investor.

On retirement, your personal risk profile and investment strategy must be adapted to your new situation – in other words, the focus is no longer on wealth accumulation, but on wealth preservation and asset depletion. It’s best to proceed in two stages and to divide assets into a depletion component and a growth component.

Asset depletion is necessary if expenses exceed income at retirement age. You should calculate exactly how much capital you will need in the first ten years of retirement to cover the income required during this first stage.

The amount needed for the first few years of retirement is best held in an interest-based personal or savings account. The remaining depletion component should be invested at low risk, for example in fixed-interest bonds, defensive equities or investment fund solutions. If you opt for an UBS Investment Fund Account, it can make sense to set up a redemption plan to withdraw a fixed amount from your invested assets at regular intervals. This is possible with a UBS Investment Fund Account as soon as your account balance reaches CHF/EUR/USD 100,000. By making regular withdrawals in this way, you can increase your income without having to worry about selling fund units.

The best way to shift long-term investments to shorter-term investments for the depletion component is to do so in stages over an extended period of around two years – for example with a UBS Investment Plan. This reduces the risk of selling shares or other investments at an unfavorable time.

The growth component corresponds to the second tranche of assets. You should only tap into this portion once the depletion component has been used up, i.e. around ten years after retirement. This longer investment horizon makes it possible to envisage higher-risk investments – as long as they remain consistent with your personal risk profile. This will allow you to take advantage of higher potential returns.

Equities or real estate are examples of suitable long-term investments. To help spread the risk, it’s best to diversify with investment fund solutions or a delegation solution such as UBS Manage.

What is more, it may make sense to include descendants when defining your investment horizon, depending on age. If a child will not be dependent on the inheritance on the date of the succession, it may make sense to opt for a longer term. If you already have plans or would like to pass on assets ahead of time, you should consider a shorter horizon.

If you would like to invest a proportion of your retirement savings in old age, you should be aware of your requirements and calculate how much money you will need as a pensioner. How high are your living costs? Do you have any other fixed costs? What dreams would you still like to fulfill? What sources of income or savings do you have? Have you factored in a possible loss in the value of your capital?

Don’t forget to consider how your living situation will change over the years. Many pensioners move into a care facility when they get older, or have to convert their own home to make it suitable for old age. It’s best to plan a financial cushion for all the anticipated costs and to consider in advance how your invested assets will be used later on. It’s important for all your fixed and spontaneous costs to be covered at all times. You must make sure that your investment strategy doesn’t put you in financial difficulty. This risk can be minimized by seeking advice from experts who will oversee the planning with you.

A lot may change when you retire, but it’s still worth investing during retirement. This will allow you to make more of your money. Early preparation is advisable, including comprehensive financial and asset planning.

This will serve as a basis for decision-making when planning your retirement, and will help you to find the right investment strategy. But remember to keep a cushion ready for unexpected expenses, because as we all know, you never know what life will bring.