How should you structure your pensions and investment accounts in Limerick?

I have been getting a number of very similar questions from readers in the past couple of weeks in relation to how their pension and/or investment accounts should be structured.
And their query is being driven by how volatile markets have been in recent weeks.
The majority have seen the value of their pension fund fall and because they are thinking about retirement, which for some might be five years away and others it could be 10 years +, they are all wondering if they are overexposed to equities?
They want to know are the funds they’re currently invested in okay? Or do they need to alter the asset split or change their fund choice altogether?
And all are good and important questions to consider.

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Because having the right mix and balance can propel you to reaching your end goal but equally if you get it wrong it can set you back years, so whether you like it or not, you have to take an active interest in the funds you save each month.
With all of that in mind when it comes to how your fund should be structured, there is a rule of thumb known as The Rule of 110 which states that you should subtract your age from 110 to calculate how much of your fund should be allocated to equities, bonds, cash, property and so on.
If you were to follow this rule and let’s say you were aged 30, then you’d be advised to have 80% of your fund invested in equities with the remaining 20% invested in a mix of bonds, cash, commodities and property.
And as you get older and closer to retirement you’ll want to reduce your exposure to the riskier asset class which typically is equities and have a higher percentage in more conservative, less volatile investments.
The Rule of 110 was once known as the Rule of 100 (same premise i.e. subtract your age from 100) but in recent years that calculation was seen as outdated particularly because of increased life expectancies.
People have to make their pension fund last longer because fewer people are smoking, cancer related deaths are reducing and medical breakthroughs are helping to extend people's lives. And what that means from a financial perspective, is that we better make sure our retirement plans are built to last.
The advantage of using the Rule of 110 is that you can very easily and very quickly check and see if the fund or funds you’re investing into fit into this rule of thumb. And if they are then great and if they’re not, that might be okay as well because you have a higher personal tolerance to market fluctuations and they don’t bother you much.
But if they do, then dialling back the % even below the rule of thumb I’m suggesting is fine as well.
I was talking to someone a couple of weeks ago who unbeknown to her was investing all of her pension money into a fund that carried a risk rating of five.
She did so because a colleague of hers was investing in this fund and not knowing any better she decided to do the same.
And as it happens it turned out to be a very lucky decision for her because markets have performed very well over the past five years and the particular fund she was investing into achieved high double digit returns i.e. +14.32% on average per year. But it was a pure accident, nothing else. On the flip side if things didn’t go so well she would either have to delay retiring and/or plan on being in receipt of a lot less each month because her fund would be smaller.
The target age she set herself to retire was 60. And she was very happy and confident that she wouldn’t want to retire any sooner or any later than this age.
And this lady was aged 45 so if she followed the Rule of 110, the fund she would have invested in would have an equity content of 65%.
However, the one she was investing in had a 75% exposure to equities.
Which is fine when markets are going up but not so good when they are going down so it’s trying to find that balance where she will benefit when markets increase and lose less when they fall.
Very long story short, when I looked at what she is likely to spend in retirement and what fund size she’d need based on (a) what she had accumulated to date and (b) what she and her employer were contributing each month, it meant her target annual return from her pension fund needed to average 3% per year for the next 15 years.

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Anything above that 3% annual return would be a bonus but there’s only so much you can spend, right? So, even if she was lucky and her high risk fund continued to achieve high returns it was money she would find difficult to spend.
Anyway, as I said when we ran the numbers a 3% annual return would give her the fund size that would pay her the €2,500 she’d need every month.
If she was too cautious with how her fund was set up and say put everything into cash where the return was likely to average 0% every year, her fund would end up paying her €1,897 per month which was €603 short of what she needed.
So, not a route she should take.
And if the fund returned -3% per year, she’d end up with a monthly income of €1,441 which was €1,059 short of what she needed.
Again not the outcome she’d want and this -3% annual return really was a bit of a worst case scenario and I didn’t expect returns would be that negative on average every year for the next 15, but it was worth having a look to see what a really bad scenario would look like.
Up until we met and ran the numbers, she didn’t know any of this. She was great at what she did but was completely oblivious to the impact annual returns could have on her quality of life in retirement and the amount she’d have available to spend and you don’t want to be finding this out when you are very close to retirement i.e. less than three years when you don’t have the time to make up for making a wrong decision that could have been made 10 years’ previously.
So, my advice was to rebalance her portfolio and move from the one fund she had which carried a risk rating of 5, into two funds.
The first fund carried a risk rating of four and she’d lodge 90% of her monthly contributions into it and she’d put 10% into the second fund that still had a risk rating of five.
That blended rate gave her an equity exposure of 55% which I thought was really good for her knowing what I did about her future income requirements. So, we brought back her exposure to equities from 75% to 55%.
And people who are 25 or 30 years away from retiring probably don’t need to get into as much detail as this because they may not even know how much they will be spending in retirement or where they’ll be living, but as you move closer to retirement i.e. less than 10 years, doing an exercise like this might be worthwhile to make sure you're on track to hit your goals.
But let me say that any rule of thumb has its limitations, the main one being that its generic.
Yes it’s good to be able to have a number to reference which can help give people a steer and guide them in the right direction. But having said that, no two people are the same and I don’t believe there is no one-size-fits-all rule which captures how someone’s pension fund should be set up.
If you want guidance on how your fund should be set up and tailored to your individual situation, I’d recommend working with a financial adviser who will build a plan for you from knowing things like, what age you want to retire at, how much you’ll spend in retirement, what other sources of income you’ll have, what other pension funds you have in place and so on.
And whilst age is the determining factor behind The Rule 110, it shouldn’t be the only factor when looking at how much of your fund should be invested in different asset classes either. And that’s because some people will have a higher tolerance for risk and others a much lower one and they are okay with that and having lower returns as a result.
And certainly no rule of thumb can ever account for things like the POTUS and what comes out of his mouth and the impact his tweets and tariffs have on markets and company share prices.
Which all means that you’ve got to apply the various % to your particular situation and no one else’s and don’t worry if your fund doesn’t match the Rule 110 I’ve been telling you about.
And there are some pension funds that automatically adjust your asset allocation mix based on your planned retirement date. They are known as target date funds and have names such as the 2035 fund or the 2040 fund. And these will be the dates when people will retire which is usually their 65th birthday so if you want to retire earlier than that you may have to do some of the changes yourself because what you and your retirement fund have planned could be two different things.
I’m going to finish up now but I’m going to remind myself to tell you about the Trinity study in another article and its connection to the 110 rule and I’ll explain to you why someone who is retired and aged 65 might still have to have 45% of their pension fund invested in equities.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie