Which one of these pension funds should a person retiring in 5 - 10 years have their money in?

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PaxmanK

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I have a relative who is planning on retiring in 5 to 10 years. He is 49 now.
They have approx €400k in their pension fund now.
Their company is doing a bit of housekeeping and have asked them to allocate their money in the fund.

They have a choice of the following pension funds to play with

Merrion Managed Fund
Merrion Global Equity
SSgA Long Bond Fund
SSgA Euro Liquidity Fund
SSgA Cash Fund
SSgA Dynamic Diversified Fund
SSgA Equity Fund

I advised them to split it 75% into Merrion managed fund and 25% into the SSgA long bond fund.
Another friend came back and told me I was completely wrong and that they should be putting at least half in cash now.

So im asking the knowledgeable members of this forum. How best would you allocate 400K to these funds if retiring in 5 to 10 years time? He is currently still putting about €2k per month in.
 
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There's really no "right" answer to this question and a sensible allocation would depend (in part) on whether or not your relative has material assets outside his pension.
 
Good point. He will definitely have his mortgage paid off before retirement date anyway.
And he has income of about €500 pm from a house he has rented out in Clare.
I think he is just concerned with keeping his money safe relatively safe for the next 5 years, but without going cash only. That why i told him to put the majority of it in the Merrion Managed Fund.
 
Thanks.

If was restricted to the above funds and was primarily concerned with preserving the real value of my pension savings, I think I would go with a split along the following lines:

30% Merrion Global Equity
30% SSgA Equity Fund
10% SSgA Long Bond Fund
30% SSgA Euro Liquidity Fund
 
I'd go for the highest possible exposure to diversified global equities, with the lowest fees. Usually 'managed' funds will have higher fees, most of which seldom justify them, often under-performing passive funds.

Your friend is only 49! His investment period doesn't end the day he retires (unless he intends cashing it in in full upon retirement). His investment period continues until he dies (hopefully a couple of decades later) or until the fund runs out (hopefully it won't).

Note: i am not an expert, and do not work in the pensions and investments industry, although i do follow the area closely with respect to my own pension and investments.
 
Just thought I would update in case anyone is interested what he did.
He decided that he wants to mostly sit out 2020 as he has already had 7% growth since 1 Jan 2020 which he is very happy with and is worried about volatility coming up.
He has moved to
10% Merrion Global Equity
10% Merrion Managed Fund
10% SSgA Long Bond Fund
70% SSgA Euro Liquidity Fund

I dont think id do that split myself, but these are strange times and I guess its good to be prudent.
 
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I think the key question is whether your friend is ARFing or buying an annuity.

Then it’s a question of what assets and income does he or she have outside of pension assets.

Then it’s a question of how he or she thinks they’ll behave during period of market weakness; if the €400k falls to €240k, how will they feel and will they stay the course safe in the knowledge that diversified portfolios recover?
 
A Managed fund is designed to give a measure of diversification using all those asset classes, so there's no a huge amount of benefit in putting small percentages in some of the alternatives. I'd also be wary of the return made from Long term bonds, the yield just isn't there.

Your friend needs to decide whether he wants to work for 5 or 10 years? One time period is twice as long as the other and should influence his decision. If he is definitely looking at 5 years, the impact of another market crash should be considered as there wouldn't be much time for recovery. If it's 10 years, he has plenty of time.


Gordon Gekko said:
I think the key question is whether your friend is ARFing or buying an annuity.
Click to expand...

Almost everyone goes for ARF's these days and protecting the tax free lump sum is a huge physiological issue. A 20% fall will knock €20,000 off his lump sum. Telling him that he can transfer across to the ARF at no difference in price doesn't cut it. Retirees see the transition from pension to ARF as the end of one journey and the start of another. They are happy to reduce risk at the end of the pension and go again with a less cautious approach when they start their ARF. Emotional finance is a huge part of working with clients.


Steven
www.bluewaterfp.ie
 
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