The general pension [Sweden]

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FrugalFrida
Posts: 100
Joined: Sat Jul 05, 2014 5:39 am
Location: Sweden

The general pension [Sweden]

Post by FrugalFrida » Tue Mar 13, 2018 5:16 am

The Swedish general pension (SS equivalent) has a smaller component, around 13.5%, where we can choose the funds. When we decide to take general pension the current balance is converted to insurance similar to a SPIA. I’m planning to take pension in 2021 at 62 three years from now.

To prepare I’ve now converted the smaller component to bond/cash funds.

50% <1 year Swedish short term bond fund in SEK with risk 1 of 7 (brown in the chart)
30% 2-10 year Swedish intermediate term bond fund in SEK with risk 2 of 7 (green)
20% Euro-denominated government bond fund in Euro with risk 3 of 7 (blue)

Image

I plan to increase the short term bond fund percentage next year. Thoughts?
Last edited by FrugalFrida on Tue Mar 13, 2018 12:49 pm, edited 2 times in total.

AlohaJoe
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Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: The general pension [Sweden]

Post by AlohaJoe » Tue Mar 13, 2018 5:55 am

Sounds reasonable to me.

carolinaman
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Location: North Carolina

Re: The general pension [Sweden]

Post by carolinaman » Tue Mar 13, 2018 7:07 am

How does this small component (13.5%) affect your payout? I am assuming it can increase or decrease it based upon performance of the securities? Is that true?

FrugalFrida
Posts: 100
Joined: Sat Jul 05, 2014 5:39 am
Location: Sweden

Re: The general pension [Sweden]

Post by FrugalFrida » Tue Mar 13, 2018 7:20 am

carolinaman wrote:
Tue Mar 13, 2018 7:07 am
How does this small component (13.5%) affect your payout? I am assuming it can increase or decrease it based upon performance of the securities? Is that true?
Yes, I've had this in total world stock index fund and a Europe stock fund until now. If the balance decrease in 2021 when it's converted I'll have lower payout in retirement.

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BeBH65
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Joined: Sat Jul 04, 2015 7:28 am

Re: The general pension [Sweden]

Post by BeBH65 » Tue Mar 13, 2018 12:55 pm

Hi Frida,

If I understand correctly this portion of your pension will be converted to a life-long annuity at the exact date of your pension.
Your goal would then be to try to reach the highest possible value at that date with the least risk.

Generally, on this forum we advise that money that is needed in medium-term should not be invested in stocks.
Based on this, your current conversion could be considered wise. You are securing the amount that you have today.


Maybe there is another way of approaching this. How important is this annuity for you? Will it be a substantial part of your income in retirement?
If you have the ability to take the risk then you might aim to get this portion as big as possible by investing it today in assets with the highest expected (but not guaranteed) return. If you are lucky the resulting life-long annuity might be very large. In reverse, as these assets are high risk, with possible high volatility, your value at the conversion date might be down and your annuity might be very small.

As often it boils down to your ability, need and willingness to take risk.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

FrugalFrida
Posts: 100
Joined: Sat Jul 05, 2014 5:39 am
Location: Sweden

Re: The general pension [Sweden]

Post by FrugalFrida » Tue Mar 13, 2018 1:32 pm

BeBH65 wrote:
Tue Mar 13, 2018 12:55 pm
Hi Frida,

If I understand correctly this portion of your pension will be converted to a life-long annuity at the exact date of your pension.
Your goal would then be to try to reach the highest possible value at that date with the least risk.

Generally, on this forum we advise that money that is needed in medium-term should not be invested in stocks.
Based on this, your current conversion could be considered wise. You are securing the amount that you have today.


Maybe there is another way of approaching this. How important is this annuity for you? Will it be a substantial part of your income in retirement?
If you have the ability to take the risk then you might aim to get this portion as big as possible by investing it today in assets with the highest expected (but not guaranteed) return. If you are lucky the resulting life-long annuity might be very large. In reverse, as these assets are high risk, with possible high volatility, your value at the conversion date might be down and your annuity might be very small.

As often it boils down to your ability, need and willingness to take risk.
Thanks, I'll say this annuity is important as it (the total general pension) will be a safe floor in retirement and cover my current frugal lifestyle. The other components is a smaller pension through the unions (I can delay payout to age 65) and my BH style after tax savings in total world stock funds and short term bonds funds. The plans may need to change if there's longer downturn in the markets though.

FrugalFrida
Posts: 100
Joined: Sat Jul 05, 2014 5:39 am
Location: Sweden

Re: The general pension [Sweden]

Post by FrugalFrida » Thu Mar 15, 2018 10:38 am

AlohaJoe wrote:
Tue Mar 13, 2018 5:55 am
Sounds reasonable to me.
Thanks!

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