Opinion – Grain in Grain: How you should invest during retirement; check if you do it

Much is said about what to invest in to achieve a peaceful retirement. However, investing well during retirement is just as or more important than the previous period. While mistakes can be corrected before retirement, after retirement a mistake can have serious consequences.

Among the various factors to be concerned about in this period of social security benefit, I will address three relevant issues: cash flow, risk and succession.

One of the fundamental points during retirement should be the concern with cash flow. What does it mean?

You must plan what flow of withdrawals you need throughout the period. Likewise, you must ensure that your equity generates enough income to cover this cash flow.

When I mention cash flow, I’m not referring exclusively to dividends. Interest or dividend payments are important, but not a priority, unless your wealth is large enough for you to live off of them alone.

It is a fallacy to claim that a portfolio of stocks for retirement must necessarily be made up of dividend-paying stocks.

The important thing is the total return, which is made up of both capital gain and dividends or interest.

Thus, cash flow must be thought of in terms of bond maturities and earnings payments.

In a portfolio, which will last the 30 years of retirement, it is important to stagger the maturities of the bonds over the years.

That way, you won’t have to sell bonds in unfavorable times like the ones we’re experiencing right now.

Should your portfolio have risk?

Risk in retirement needs to be managed more carefully than in the period before retirement.

Investors become more conservative upon retirement, as they usually lose the ability to withstand volatility when they have no income. Thus, it is important to reduce risk before facing a market crash so that you do not have to reduce after the crash.

But that doesn’t mean you don’t have to take any risks. Remember that a portion of your portfolio will only be used 25 years after you retire.

For example, with R$2.1 million and a real interest rate of 0.33% per month (4% per year above inflation), it would be possible to have an income of R$10,000 per month for 30 years. When you reach 25 years of retirement, there will still be an equity of R$ 541 thousand at today’s values ​​that will be enough for the monthly commitment for the last five years.

So, if you have an aggressive profile, you could allocate, today, this portion of R$ 541 thousand in assets that could eventually guarantee an improvement in income in the future or even leave it to the heirs, which is the next topic.

Is it necessary to worry about succession?

Unfortunately, the probability of a fatality grows as we age. Therefore, it is important to think about facilitating the transfer of assets to heirs.

This will save your family members money on taxes and property transfer costs, as well as avoid quarrels in the family, precisely at a time when it should be most united.

Good planning will reduce the dilapidation of the heritage you’ve worked so hard to build.

There are several items to think about, but I will put two tips.

First, avoid having real estate in your name if you are over 70 years old. You can make a living donation with usufruct. However, avoid placing the same property in the name of two or more siblings. You will only generate a fight, because one will always want to sell and the other will not.

Alternatively, if you only have one property and a large family, prefer to sell the property in life and use this value as a source for your more peaceful retirement.

Second, as you get older, the share of your equity invested in pension products, such as VGBL, should be greater. For funds that you will not use in your retirement, a simple rule of thumb is to have your age number as a proportion applied in VGBL.

For example, for someone aged 70, according to the IBGE, the average life expectancy is 16 years. With BRL 1.42 million, you could live these 16 years, receiving BRL 10 thousand monthly with real interest of 0.33% per month. If you had BRL 500 thousand more than this amount, 70% of it, that is, BRL 350 thousand should be in VGBL.

By properly planning the cash flow of your investments, controlling risk and keeping a portion prepared for succession, the success of a smooth retirement is guaranteed.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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