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Do you know that? Retirement provision contracts, many of which do not know what they have actually signed. Time to clean up so that it works with a good pension
It is the classic in my financial coaching. Life insurance of all kinds, Riester contracts and overflowing portfolios with 15 or more different stock or mixed funds, where the clients have great difficulty explaining what they supposedly have for retirement. When I ask what the money in these forms of investment does for the client and what pension payments can be expected, I almost always shrug my shoulders. Such deposits are usually put together by banks, a friendly banker or a commission sales agent.
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Financial ballast is often expensive and rarely produces good returns.
Retirement planning without a plan and a defined goal. But mostly expensive and non-transparent. For example, for a client with an investment amount of more than 450,000 euros, two thirds of the income went to the asset manager and was used for ongoing costs. She only received a third as income. A complete imbalance.
For me, retirement planning without a plan and goal is financial ballast. Ballast because it actually burdens you. This is one of the reasons why women and men come to me for coaching. They realize that this chaos does not give them security and that they need a fresh start. She is plagued by a guilty conscience. They let it run for too long and didn’t look enough. They have no control over it and simply do not know whether their contracts are worthwhile or make sense. The only thing that helps here is: clean up! And everyone can do that themselves.
Take a weekend, collect all the contracts, portfolios and assets and create clarity.
What is really in the contracts?
The starting point is always an inventory.
- List: What contracts and investments are available? Collect everything – insurance, funds, savings plans, building society contracts. Everything on the table. Write all important data on one sheet of paper. For example, the conclusion date of the contract or purchase date of the funds, ongoing costs, closing costs, current deposits, current values, guaranteed pensions. If this is difficult for you, you can invite a friend who likes to tidy up and thinks systematically and wants to help.
- Add up the costs: How much does the investment cost per year? A question that hardly anyone can answer. Insurance and active funds often have high fees that add up to large sums. And we will miss out on our pension later.
- Compare development per year: How have the systems developed? Lame duck or quick rabbit? Many active equity funds and especially mixed funds fall far short of the possible market returns.
- Inflation eliminated? In addition to the annual return achieved, we put the inflation for the year. It is then immediately clear whether the “financial investments” create value or destroy value over time. If the returns achieved are above the inflation rate, value is created and destroyed. And that shouldn’t be the goal of retirement planning.
The crucial question: What do I want with my money?
When tidying up, one question is crucial: What do I want with my money, what do I want to achieve with it? Do you dream of owning your own property, a sabbatical, financial freedom or a big cushion for your retirement? Clarity about these goals is the basis for recognizing baggage and financial products and supposed investments targeted and clear it out analytically and not just based on gut feeling.
What to do with legacy issues? Here are a few options:
- Terminate: If a contract is absolutely pointless, like most building society contracts, get rid of it. But first check whether the termination is financially worthwhile or whether there is a risk of high loss reductions. The consumer advice centers help to evaluate contracts, and the association of insured persons helps with all types of insurance.
- Put on hold: Some contracts can be made exempt from contributions. Then the monthly savings amount no longer applies and the credit remains intact. But here too it is important to look closely. Because sometimes the ongoing, high costs eat up the credit over the years. Sometimes termination is better here too.
- Recognize the investment universe: For existing funds, we need to know what the investment objective of these funds is and where they invest their investors’ money: in stocks and bonds or just stocks, in which regions, sectors, large or small companies? There needs to be clarity here. If you only have a few funds, this information can be read and listed from the fund’s basic information sheets. Or we can use fund search engines like or . If there are more than five funds in the portfolio, portfolio analysis tools such as are suitable so that we can see how we are invested.
- Rearrange: With the knowledge from the fund analysis, it can then be clarified which funds are allowed to remain and which are sold and the money is reallocated into a more profitable and cheaper alternative. The costs incurred and possible capital gains taxes on the profits of the funds must be taken into account. What matters here is how long the funds have been saved and how many years or decades are left until retirement.
Really do it!
Separating yourself from legacy financial burdens not only relieves your own conscience and gives us a feeling of control and self-efficacy. It helps, and more importantly, to have enough as you get older. So many people give away tons of money that they desperately need in their old age just because they are too comfortable looking into the building process because they trust others, even though that is completely inappropriate.
Getting your finances in order isn’t rocket science. It requires some time, but it is well spent. The effect of a simply structured and high-yield retirement plan is like a nutritious meal: everything is clear, you see what you have and what you can expect.
Source: Stern
