The future of retirement pension planning

Life expectancies are increasing, the state is cutting benefits. Yet it is young people who are procrastinating when it comes to the issue of retirement pension planning. Frank Breiting, Head of retirement pension planning at DWS Investments and Prof. Olaf Stotz from the Frankfurt School of Finance & Management discuss the reasons and alternatives for effective retirement pension planning.

retirement penision planning

In conversation with the experts

7 tips from a professional

Frank Breiting, Head of retirement pension planning at DWS Investments:

Get information early on...
In my case, this happened passively as a child. My father was an enthusiastic investor in stocks and loved to draw charts on graph paper with a pencil or pen. I started buying shares relatively late, after studying. This was my capital formation savings plan.

Ask the right questions...
First decision: how much money can I and do I want to set aside each month? Second decision: how do I want to invest this money? What investment mix will suit me? For example, am I somebody who would prefer German shares, European shares or global shares? Do I want to take care of it myself? Or am I somebody who does not want to bother with the details?

Forget crises and just get started...
Something that often stops people investing money is that there is always a crisis somewhere. People think: “There is a scandal now, we are facing an oil crisis, the dotcom bubble has just burst.” There is always a good reason to say: “Now is probably the wrong time to buy shares.” And this leads to people never starting to buy them. But the logic is actually the opposite. You simply have to start and then you will see that today’s crisis has been forgotten again tomorrow.

Patience, patience, patience...
You have to give the process lots of time, even if the stock exchanges are turbulent for a while, even if there is a year in which the economy does not perform so well. You have to ignore this. Because this is the only way that investing in shares will work. It is virtually impossible to lose money over a period of 30, 40, 50 years with a highly diversified stock portfolio. History has shown: you will always make a profit.

Listen to your head...
Your gut feeling about shares is: “It is risky! You should not invest so much money in them.” Your head says: “It is the only opportunity at the moment to generate any added value at all.” You have to ensure that your head has the upper hand. This is a process that requires a change of mind-set among the population as a whole, and we as an investment company have to foster this.

No provisions without shares...
There is no alternative to stocks and shares for retirement pension planning. For my parents, government bonds were the basis for asset formation. But if I were to invest my money in the same way that my father did, I would lose money year after year because of the negative interest rates and inflation – something that most people fail to consider. I have to invest the majority of my money in tangible assets, in shares, perhaps also in real estate, depending on what type of investor I am. Then my money will be participating in the real economy, which is where value is created.

The 10 per cent rule...
You have 40 to 50 years to deal with the topic of retirement pension planning. With a normal salary, this should be enough to develop a capital stock if you are reasonably careful with your money. My father’s firm rule: “10 per cent of your income should be set aside.” I have adhered to this since I received my first salary because it was already clear to me then, that the state pension would not be enough.

5 thoughts on retirement pension planning

Olaf Stotz is a Professor of Asset Management at the Frankfurt School of Finance & Management

People don’t think about the future...
There is a classic academic experiment from the 1960s: a child is given a sweet, it can decide whether to eat it immediately or wait half an hour and then receive another one. The child invariably eats it immediately. It is the same with retirement provisions: you save now so you can afford more later, but with money, as with sweets, people are more interested in the present than the future. With my students it is just the same. Retirement pension planning is not an issue for them right now.

Change your thinking and use new media...
The products and consulting approaches that are currently available ignore the individual. A change of mind-set is necessary. Targeting young customers means: being present where they are – in new media, apps, and other tech products. And addressing them appropriately, interpreting boring data in a smart way.

Retirement pension planning is an absolute necessity...
Above all, an appealing financial product for retirement pension planning should be simple. At the end of the day, you just have to answer these questions: what standard of living do you want to have? How much do you want to save each month? And how do you want to invest your savings? Ultimately, the task of a consultant is to precisely translate this complexity so that the investor can answer these questions accurately.

The most important rules for retirement pension planning...
All investors should first ensure that they have a general overview of their financial situation and then identify any financing gaps. This is where expert advice will probably be required. Maybe there will be an app or two in the future which will be able to provide this information. But if you want to penetrate the information jungle, you have to be willing to do so.

The illusion of security...
Many people are under an illusion. They feel safe as a collective. This is probably because they are doing well right now. This applies particularly to today’s younger generation. They live much more in the here and now than people used to. Young people have far fewer worries about long-term developments. Developing an awareness for the long-term is the major challenge for retirement pension planning.