What is the best investment for retirees
Financial investments for seniors: A safe mix of assets in just a few steps
The transition to the retirement phase is a financial upheaval for most seniors. Instead of the earned income, the mostly lower pension now flows into the account, long-term savings contracts must be converted into a supplementary pension and a flexible financial reserve must be formed from free capital.
None of this works by itself. Retirees need a clear plan and a good strategy to get everything done successfully. You should do this step by step. It is advisable to hedge against risks first, then to secure the necessary income and only then to focus on new investments. We explain how you can precisely analyze your financial situation and structure it in the best possible way for your purposes.
Analyze your financial situation
First of all, it is important to analyze your own financial situation in retirement. Do you get an overview of your regular income and expenses and check your financial situation? Pay attention to these points:
How high are the guaranteed, lifelong benefits from company, statutory and private pensions? Are there any additional savings contracts with a lifelong payment guarantee, such as a Riester or Rürup pension? Can capital assets that are released, for example from endowment life insurance or a severance payment, be used for any additional income that may be required?
Check all expenses that arise in the new life situation. In addition to the costs of daily living, these are primarily ancillary costs such as rent, electricity, gas, water, as well as the costs for the car, insurance premiums, taxes, health expenses, loan installments, hobbies and vacation trips.
- Biallo tip: If possible, you should expeditiously reduce loan obligations. Use special repayment rights to get out of debt faster. Ultimately, the following applies: loan interest rates are almost always higher than credit interest rates. Paying off debts is therefore more profitable than investing money.
Also check your insurance contracts. You no longer need policies such as disability insurance or daily sickness allowance in old age. Motor vehicle insurance is also cheaper for children without a car permit.
Plan for unexpected burdens, such as sudden care costs for the partner, health expenses or money for necessary repairs or renovations to the home.
Important: Create an emergency reserve. The consumer advice centers recommend to park two to three net monthly income in a call money account. Call money is available at all times. With a financial reserve you avoid having to take out new loan debts unnecessarily, for example if the washing machine suddenly has to be replaced or an expensive repair is pending on the car.
Secure pension income
The comprehensive financial check shows whether the regular pension income covers all expenses. If this is not the case, meaning that there is an income gap, you should definitely close it. After all, it is about being able to enjoy retirement without worries and without financial worries.
The income gap can be closed with savings, money from an inheritance, a company severance payment or a paid-out life insurance policy. It is important that the supplementary pension flows securely and permanently, not that another income gap arises after ten or 15 years. There are several forms of investment that can be considered for retirement:
Pension insurance for a single amount guarantees lifelong payments. Payouts start immediately after the insured person has paid in the necessary capital. For a one-time payment of 100,000 euros, good companies can currently expect around 300 euros in monthly pension.
Problem: You have to get very old for the insurance to pay off, because the insurers calculate with a long life expectancy. Survivor protection for relatives beyond one's own death is always at the expense of the pension payment - the consumer advice centers recommend separate insurance for this.
Real estate for capital investment promises permanent income plus appreciation in value. However, you need a lot of acquisition capital here, because condominiums are very expensive almost everywhere. The purchase on credit is not recommended, because the rental income should not be used to repay the mortgage loan, but as a supplementary pension.
It is important that the net return is right, it should be at least three to four percent. In order to determine this correctly, the help of the tax advisor is recommended. But there is always one risk: loss of rent.
Fund payout plan
If a larger amount is invested in securities, you can live on it for many years and improve your pension. Global equity index funds are recommended because they spread the capital across many companies and regions. How much and how long you receive a pension depends on the withdrawal amount and the development on the stock exchanges - there is no guarantee of lifelong payments, however.
- Biallo tip: Since stock markets fluctuate, a flexible withdrawal level makes sense, because in the event of a stock market downturn it is advisable to withdraw fewer shares at times. In contrast, when the stock market is booming, comparatively few shares need to be sold in order to generate the desired income. If you don't want to take care of it yourself, you can create an automatic withdrawal plan in the depot. This is possible with S-Broker, Targobank or Flatex.
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Set investment goals, choose investments
After reducing liabilities and securing current income, there is scope for financial investments. Your investment goals are decisive for choosing the right form of investment: Do you want to build up assets or safeguard assets? Would you like to remodel your property at a later point in time or make provision for a possible need for care? How long do you want to save? Is the investment bound to a time limit?
Each goal requires a specific investment horizon and a certain level of risk tolerance. The investment should in any case correspond to your financial circumstances, and you should be able - if you save with securities - to bear price declines or even losses.
Since there are usually several savings wishes at the same time, seniors need different investments. In addition to the savings period and risk tolerance, the cost argument plays an important role. Fixed-term deposits, savings bonds and overnight money look good here because they do not incur any fees. It looks different with securities. Buying stocks and funds requires fees as well as holding funds, as a fund fee is payable annually. In the case of equity funds, this can be up to two percent and more per year. Seniors should therefore find out exactly what costs are to be paid in each individual case.
- BialloTip: Instead of investing in expensive, actively managed equity funds, invest in low-cost ETFs. These index funds replicate a stock index or a fixed basket of securities one-to-one, such as the DAX or the world stock index MSCI-World, and cost only a fraction of traditional equity funds. The bottom line is that with ETFs you can save many thousands of euros in management fees over the years and thus improve your net income.
Short term savings goals
If you want to save money for a Caribbean cruise or a new car, you need an investment with a short to medium term. In order for the money to be available at the desired time, it should be invested securely and without the risk of fluctuations. This is the only way you can precisely calculate the planned purchase.
Fixed-term deposits and savings bonds are the first choice for secure savings. The products offered by banks offer predictable terms and returns. The persistent low interest rates currently only allow low returns, but there are no costs that reduce earnings. Investors can choose between different terms ranging from one to ten years. For example, the Klarna Bank from Sweden currently offers 1.01 percent per year for three-year fixed-term deposits. At the Austrian Kommunalkredit Invest, 0.75 percent per year are in for the same term (as of February 22nd).
- Biallo tip:Banks keep launching special offers with special interest rates in order to win new customers. In order to find good offers, it is worth comparing providers in the area of savings.
Medium-term savings goals
You can achieve a higher return if the savings goal is further afield. Investments in low-volatility funds are suitable for investment horizons between five and ten years. Suitable forms of investment are, for example, mixed funds or bond funds as well as real estate funds. These fund classes offer higher returns than fixed-term deposits, but do not fluctuate as intensively as equity investments. Some examples:
These funds combine different asset classes such as stocks, bonds, real estate or commodities and practice active risk management. The investment diversification dampens market fluctuations and keeps potential returns open. The statistics of the BVI fund association show an average return of 2.9 percent over a five-year perspective for balanced, globally investing mixed funds, and 3.1 percent over a ten-year perspective. So-called multi-asset funds, for example the Arero Weltfonds (ISIN: LU0360863863) or the FvS Multiple Opportunities R (ISIN: LU0323578657), achieve very good investment results in the mixed funds sector. Despite the corona crash, both funds gained 40 to 50 percent over a five-year period.
Due to the persistently low level of interest rates, the returns on bond funds have been on the decline for years. Both globally investing and euro bond funds achieve returns of between 1.5 and 2.5 percent with medium bond maturities over a five- to ten-year perspective.
Open real estate funds
The real estate funds, often referred to as concrete gold, are among the investment funds with the most stable value. They often survive price turbulence on the stock markets unimpressed. The high stability predestines open real estate funds as a crisis-proof foundation for balanced deposits. Yields came under pressure in the wake of the corona crisis because many funds had to accept losses from rental losses in shopping centers and office towers, but that should change again quickly after the end of the pandemic. Over a number of years, open-ended real estate funds generate annual returns of around three percent. Successful representatives are, for example, Deka-ImmobilienEuropa (ISIN: DE0009809566) or HausInvest from Commerzbank (ISIN: DE0009807016).
Example: This is how an investment for senior citizens could be divided
Security and return
Recommended investment period
Up to 5 years
5 to 10 years
From 10 years
Money market funds
Real estate funds,
Low to moderate
Low in ETFs,
high for funds and real estate
Up to 25%
25 to 50%
25 to 50%
Source: Biallo.de; after own research; Status: February 2021.
Long-term savings goals
Retirees shouldn't miss out on returns. Assets that you will not need for the next ten years or that are intended as a later inheritance for children and relatives can be invested in the capital market with plenty of opportunities. Since investments in stocks and equity funds involve a higher investment risk, you should only invest part of your assets in this asset class.
- Biallo tip: Pay attention to a balance between availability, security and return. This means that part of your assets should be invested flexibly, i.e. available, a second part should be kept safe and crisis-proof, and a third part should be invested profitably - i.e. with good opportunities.
Which specific breakdown is recommended in each individual case depends heavily on your investment goals and your risk-bearing capacity.
ETFs: simple, promising, inexpensive
For long-term investments, the consumer advice centers recommend investments in low-cost index funds that invest around the world. These funds, known for short as ETFs, are traded on the stock exchange like stocks, but are less risky than individual stocks because they are based on a large number of individual stocks. ETFs replicate a stock market index or a fixed basket of shares one-to-one, which means that their performance is very transparent. Acquisition on the stock exchange causes lower costs than the issue surcharge for traditional equity funds. In addition, the passive control of the funds via computer programs causes significantly lower administration and management fees than traditional, actively managed equity funds.
The consumer advice centers recommend global equity ETFs, as these contain a large number of stocks from different regions of the world. The broad diversification results in a good risk distribution. A typical example of this are ETFs on the MSCI World Index. This comprises around 1,600 shares and, calculated in euros, has achieved an average return of 8.1 percent including dividends for 50 years.
Classic equity funds
As a promising addition to ETFs, conventional equity funds primarily enable alternative investment themes to be covered. For example, if you would like to invest in future fields such as hydrogen or artificial intelligence (AI), or would you like to focus on a certain category of stocks, such as growth stocks or selected small caps, you may not find a suitable ETF. Classic equity funds fill this gap. Here you will find a huge selection of all imaginable investment themes.
Actively managed equity funds can also be useful as a supplement to classic index ETFs. For example, if you want to invest in German stocks, in addition to a DAX ETF, an investment in DWS Germany (ISIN: DE0008490962) or DWS Aktienstrategy Germany (ISIN: DE0009769869) can make sense. In addition to the large German blue chips, both funds also contain many small caps - and this is characterized by an above-average performance. While typical DAX ETFs can currently show five-year profits of a good 35 percent, both DWS funds achieved a profit of around 45 and 50 percent respectively.
Attention: Singular investment themes or a restricted stock selection can increase the investment risk. Always invest in such funds only manageable amounts so that you can easily cope with a possible loss.
If you are unsure which investment decision to make, we recommend that you seek advice based on trust. The consumer advice centers, for example, offer independent and objective financial advice for little money. A personal interview with a bank advisor is also possible. Here it is advisable not only to consult the advisor of the house bank, but also to take a look at the competition.
Pay attention to these points during the consultation:
- Don't let yourself be pressured. A reputable advisor will give you time to make a decision.
- Make sure that the advisor is talking to you about the following: your investment goals, investment experience, risk tolerance, your financial situation and the ability to bear losses. This is the only way to get a comprehensive picture of your wishes and possibilities.
- Do not be blinded by promises of high returns.
- Ask about all the costs involved.
- Do not rely on verbal promises. Check whether the promises made can be found in the legally prescribed and handed out advisory protocols or in the product information sheets.
- Compare several offers and providers.
- Only invest in assets that you really understand.
Protection against wrong advice: the declaration of suitability
In order to prevent risk papers from being sold to investors as a safe investment, investment advisors have had to prepare a written document for every consultation since the beginning of 2019 - the so-called suitability declaration. This is to be given to the consumer after the conversation. In contrast to the previous advisory protocol, banks must present in writing why financial instruments such as funds, stocks, bonds or certificates should suit the customer and why they are recommended by the bank.
In this way, you have the option of referring to the suitability declaration in court in the event of damage.If the protocol reveals advisory errors or it even shows that you wanted a safe investment, but were actually recommended a risky investment, the suitability declaration serves as evidence. In this case, the bank would be obliged to prove otherwise.
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