ConsumersSharesRetirement provision

Don’t leave money on the table as you get older

Sylvie Ernoult

People who have spent a lifetime saving for retirement are understandably reluctant to take risks. Even though interest rates are rising, revenues from interest-bearing investments remain low. Given the current inflation rates, most people saving money in this manner are likely losing capital.

Does that mean that retirees are doomed to watch inflation eat away at their savings? Thankfully, no. By planning carefully, retirees can select appropriate options to ensure that their assets continue to grow on the stock market as they age: after all, people turning 65 this year could well have 15 or 20 years of life ahead of them. Provided a few requirements are met, that’s enough time to still participate in and make a profit on the stock market. Even after retiring, investing in broadly distributed equity funds or an ETF index fund such as MSCI World can be worth it; these funds are spread across many different industries and countries, which keeps risks low. However, it is important to ensure that the fund is truly diverse; avoid anything that focuses too strongly on individual industries or countries. Investing too much money on the domestic market, so in this case within Germany, is a common mistake made by investors. 

The higher the potential rate of return, the higher the risk, but long-term investments usually allow investors to recoup any losses caused by fluctuations or price slumps over time. On average, it takes five years for such fluctuations in share prices to level off. That means that investors need to be prepared to take the time to wait out any market slumps and variations in price. It is important not to put yourself in a position of having to sell shares at an inopportune moment. Over a period of 30 years, however, the average growth is around 7% each year, even when taking into account market crashes.

This is good news, but investors still need to carefully consider their options before investing. The most important question to answer is “how much money will I need per month when I retire?” Ideally, recurring payments such as rent and the daily cost of living will be covered by your fixed monthly income, that is your statutory or company pension. It is also important to have an easily accessible emergency fund in either your current account or an instant access savings account, so that you can pay for any financial surprises, such as health care. You should set aside an amount equal to at least four to six times your monthly income for this purpose. 
The value of any capital that exceeds this emergency fund amount but is nonetheless deposited in your current or instant access savings accounts will inevitably decrease over time. And that’s where a diversified, inexpensive ETF investment account comes in.  

When planning to invest in ETFs, you can select between two options: you can invest a lump sum or set up a monthly payment into an ETF savings account. It order to mitigate risks, we advise splitting the amount of capital you have available to invest into smaller amounts and investing it in stages, for example using a securities savings plan. This helps to avoid investing all your money when prices are high allowing you instead to invest at average prices. If you plan not to touch this money, you can simply leave it in your investment account and let it ‘work’ for you.  

Alternatively, you could also plan to withdraw money from your ETF account monthly in order to improve your pension. You can think of a monthly income fund as a bit like a standing order your bank arranges for you: you ask the bank to sell securities worth a specific amount each month and then to transfer that money to your bank account. If you do this, it is important to ensure that your capital will last until the end of your life. Because it is not unusual for capital to grow by 7% on average, it is a good idea to assume that your investment will grow by 4% when determining whether or not this is the case. In addition, you should assume that you belong to the ten percent of your cohort that will live the longest (reaching 95 years of age). Additional regular payments might come from dividends. 

But even if you invest your assets in an ETF account without planning to withdraw money regularly, there are ways to profit from positive market developments while also reducing residual risk: providing the capital markets are strong, you can sell ETF shares to make a profit, then use that money to fill your instant access savings account. When the market is weak, it is best to leave the money in your investment account and take money from your savings account if necessary, without refilling it by selling ETFs. 

Another advantage of securities accounts as compared to other products: they are inherited in the event of death, and passed on to surviving dependents, so your loved ones can also profit from a lucrative investment when they retire.

If you have any questions about which investments are right for you, contact your bank for advice.

Contact Person


Sylvie Ernoult

Media Spokeswoman

+49 30 1663-1210Send E-Mail