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A simple strategy for investing your pension
Working out where to invest your pension savings is a daunting task but splitting the money into three categories could help you gain perspective.
by Michelle McGagh on Feb 15, 2012 at 09:15
Investing your own pension is a daunting task but there are simple rules to follow that will allow you to create a strategy that suits you.
According to Dawid Konotey-Ahulu, chief executive of pension fund adviser Redington, segmenting your pension savings into essential, luxury and nest egg categories can help to figure out where the money should be invested.
He warned that most people ‘massively underestimate how much they need to look after themselves’, adding that more people in their 40s and 50s are called upon to look after elderly parents while also providing for children struggling to purchase property or deal with student debt.
‘People are living to 95 or 100-years-old now, if you retire at 65 how will you fund maybe 30 years or retirement? One helpful way to [invest your money] is to divide your money into three in retirement and have three classes of assets,’ he said.
Konotey-Ahulu (pictured) recommends dividing your pension savings into three segments.
1. Work out how much you need to provide basic necessities like light, warmth, food and a roof over your head – add up how much you would need to fund this for 30 years and invest this money in the safest assets you can find.
2. What amount of money do you need for luxury or non-essential items such as travelling to see your children and grandchildren or taking a holiday? Put this money aside and invest in more risky assets.
3. What amount of money do you want to leave to your children or grandchildren? You can take a lot more risk with this money. This segment allows you to grow your nest egg for a rainy day, or an emergency, or to give away to your family.
Konotey-Ahulu said: ‘You can work this out with an Excel spreadsheet. Look at how much you will need to keep the lights on - you will be surprised how much you will need, but it gives you a sense of a strategy for where to invest your money.’
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