How should I invest my SIS Pension Fund money once I am
retired?
In
general, the sooner you need to spend your pension money, the less risk you want to take with it. That is why the SIS Pension Fund Life Stage Funds reduce stock exposure as
participants age under Age Based
Investing. The Maximum Growth Fund
has the largest stock exposure (70% stocks) of any of the Life Stage
Funds. This Life Stage Fund is generally
best for younger individuals who have the longest time before they will be
spending their pension money. Stocks are generally considered more risky than fixed income (bond) type investments. Risk is usually
defined as up and down price volatility.
Stocks generally have greater volatility than bonds and therefore are considered somewhat riskier. Stocks also are generally considered to
produce greater investment returns than bonds over time. All investors have to balance the desire for
greater returns against the desire for the lowest risk.
As
you age, the Trustees recommend reducing your exposure to stocks. So, how should your money be invested once
you retire? While this answer is truly
dependent on your own plans for the money and your own risk tolerance, you
should consider the likelihood that you will not be spending all of your SIS Pension money in the next
few years. Assuming you plan to use your
money over your lifetime, or even longer – over the lifetime of you and your
spouse, most early retirees should plan for an investment horizon of 25 to 30
years. Even if you plan to begin spending
some SIS Pension money immediately upon retirement, some of your money will be
invested for many years and stock exposure, even stock exposure of greater than
the 15% exposure in the Current Income Fund can be appropriate.
Many
Sprinkler Fitters have individual accounts that exceed $250,000 and more than a
few have accounts that exceed $500,000.
You should consider paying a financial planner to assist you with how
much stock exposure you should have and how much of your SIS Pension money you
can plan on spending each year. You want
to balance your desire to not overspend with being unnecessarily frugal – you want
enjoy your retirement so don’t short change yourself financially in your
younger years while you can still enjoy life fully.
One
pitfall in finding a financial planner is making sure that the planner’s advice
is not tainted by the way the planner makes money. The article “How to
Choose a Financial Planner” covers this subject well. Most financial planners who work for
investment management firms make their money by selling you investments. While this approach can work well, you will
almost certainly pay much more for the service than is necessary. Once you invest with a money management firm,
whether using mutual funds or individual investments, you will pay a percentage
of the invested assets every year. This is true even for the money you have
invested in the SIS Pension Fund. The
difference in having your money invested in the SIS Pension Fund is that you
are paying Institutional (wholesale) prices rather than retail prices. In 2006, the expense ratios of the SIS
Pension Fund range from a low of 0.38% for the Capital Preservation Fund to a
maximum of 0.68% for the Maximum Growth Fund.
It is unlikely that you will find a retail IRA with lower expense
ratios, especially if you are looking for personalized financial planning
services.
A
financial plan might cost you $1,000 to $2,000.
But remember that 1% of $250,000 is $2,500 and you will pay 1% or more
every year if you invest with most high quality investment firms. You have a lot of money; seriously consider
whether you could benefit from a professional financial plan.
If
you are generally happy with the investment options available with the SIS
Pension Fund, you can choose to
leave it in the SIS Pension Fund even after you retire. Whatever portion of your money remaining in
your account is invested based on the Life Stage Fund in which you are
invested. The Trustees encourage you to
leave your SIS Pension money in the SIS Pension Fund until you are ready to
withdraw all or a part of it. The IRS
will make you withdraw at least a minimal amount each year once you reach age
70 ˝.
Internal Links
Back to Planning for Retirement
External Links
How to Choose a
Financial Planner
Investopedia – Risk
– Stocks