Principles for Investing in Retirement

Are you approaching retirement? If so, it’s wise to take some time with a financial broker or advisor to review and refine your strategy before selecting the appropriate solution for your retirement needs.

We all like to think that when our working life ends, everything will be sorted. The planning will have been done, allowing you to relax and enjoy your new life of leisure. If you are nearing retirement, it is essential to take some time with your financial broker or advisor to review and refine your strategy before choosing an appropriate solution for your needs.

In this article, we will explore three key retirement principles to help you make the best choice at this exciting time in your life:

ARF vs. Annuity
Sequencing Risk
Rebalancing

ARF vs. Annuity Traditionally, retirement planning involved making a definitive choice between an Approved Retirement Fund (ARF) and an Annuity. However, retirement conversations have become more fluid.

In the early years of retirement, there is often an increased need for flexible retirement income, which can be provided by an ARF. An ARF allows you to invest all or part of your pension fund after you retire. You can choose the type of fund to invest in and the amount of risk you’re comfortable with.

With an ARF, you can withdraw from your fund regularly or on an ad hoc basis. In the latter years of retirement, there may be an increased need for a guaranteed retirement income, which can be provided by an Annuity. When purchasing an Annuity, it’s important to choose one that reflects your needs and those of your spouse in retirement.

: Sequencing Risk Retirement investments face many risks, such as stock market volatility, rising inflation, unexpected expenses, or healthcare costs. One risk that often receives little attention is sequencing risk.
Sequencing risk is the possibility that consistent withdrawals combined with market downturns in the early years of retirement could drastically shorten a portfolio’s lifespan. Once an investor retires and starts taking withdrawals from their investment portfolio, annual market returns become critically important.
Significant market losses in the early years of retirement can shorten the longevity of a portfolio (such as an ARF), even if better-than-average market returns occur in later years. This is the risk posed by the sequence of returns.
At MBC Financial, we manage this risk by dividing investments into three ‘buckets’, each consisting of different asset classes: one for short-term obligations, one for medium-term spending needs, and the third for succession and inheritance considerations. Each bucket is designed to meet specific time-based goals, mitigating sequencing risk by ensuring access to cash or stable investments for near-term expenses.

Rebalancing When you start investing, you set objectives and decide on an asset allocation plan to direct your purchases. Most investors opt for a multi-asset fund, where the asset allocation occurs within one fund choice.

However, if you select multiple funds, your portfolio may deviate from the initial asset allocation as funds fluctuate in value. In this scenario, rebalancing is crucial for risk management and increased returns. Rebalancing involves purchasing and selling funds periodically to return a portfolio to its intended asset allocation.

Regular reviews ensure you remain on track to achieve your long-term, strategic financial goals.

If you are nearing retirement, it pays to get expert pension advice. Speaking to a financial advisor like Alan McCarthy can be beneficial when reviewing and refining your strategy before choosing the right solution for your retirement needs. Contact Alan McCarthy at alan.mccarthy@mbcfinancial.ie for trusted advice.

Warnings:

Past performance is not a reliable guide to future performance.
Benefits may be affected by changes in currency exchange rates.
The value of your investment may go down as well as up.
If you invest in these products, you may lose some or all of the money you invest.