Discover how I built my retirement cash flow using a personal pension account. Learn my exact ETF asset allocation that helps me sleep well at night.
Introduction
Hello, this is CY. Today, I want to step away from the general theories and share a very personal story about my own Financial Independence, Retire Early (FIRE) journey.
When I first started my corporate job, the very first thing I did was open a personal pension account. I did this because I quickly realized a cold, hard truth about retirement. In my home country of South Korea, just like in many other parts of the world, preparing for old age generally relies on three pillars: the National Pension, the Company Severance/Retirement Pay, and the Personal Pension.
Let me explain why relying on the first two is a dangerous game, and why the third one became the ultimate weapon for my FIRE plan.
The 3 Pillars of Retirement (And Why Two Are Not Enough)
1. The National Pension (The State Pillar) Every month, a portion of my salary and a matching contribution from my employer go to the government. The promise is that I will receive a monthly pension after age 65. However, due to the rapid depletion of pension funds worldwide, the receiving age is constantly being delayed. It is a default system, but depending on it is risky.
2. The Severance Pay (The Company Pillar) For every year I work, my company sets aside a certain amount of money as severance pay, which I will receive when I leave the company. If I choose to receive this as a long-term annuity rather than a lump sum, the government gives me tax benefits. Again, this is a default system paid by the employer.
The problem with both the National Pension and the Company Pension is simple: the final amount is just too small. They provide a basic survival net, but they will never give you the financial freedom to retire early.
3. The Personal Pension (The Freedom Pillar) This brings me to the third pillar: the Personal Pension. This is a financial product you open yourself with a financial institution. You deposit your own money, and you choose exactly how to invest it.
I started my personal pension immediately after joining my company for two massive advantages. First, it offers incredible tax benefits. A portion of the money I contribute each year gives me a tax credit. More importantly, the profits I make from my investments are not taxed while they grow. The taxes are deferred until I start withdrawing the money after age 55. This allows the magic of compound interest to work at maximum speed.
Second, the personal pension forces you to be a long-term investor. Because there are heavy penalties if you withdraw the money before age 55, it locks your money away. In investing, survival is everything. This forced restriction protects me from my own emotions, preventing me from selling in a panic when the market crashes.
My Exact “Peace of Mind” Portfolio
So, how exactly do I manage the money inside my personal pension? Here is my current asset allocation:
- 50% S&P 500 ETF
- 10% NASDAQ ETF
- 40% US Long-Term Treasury Bond ETF
When people see this, they often ask why I hold 40% in bonds. It is true that right now, the return on my US Long-Term Treasury Bond ETF is actually negative. When general interest rates rise, the price of existing bonds falls. However, because my stock ETFs (S&P 500 and NASDAQ) have performed so well, my overall portfolio is solidly in the positive.
Why do I keep this allocation? Because of the psychology of money. The most mathematically perfect investment strategy in the world is useless if you cannot stick with it during tough times. Academic finance tries to find the mathematically optimal strategy, but in the real world, you want the strategy that maximizes how well you sleep at night.
Because 40% of my portfolio is in bonds, the overall volatility of my account is much lower than the general market. During massive bull markets, my portfolio’s growth might feel a bit slow or frustrating compared to friends who are making wild, risky bets. But when the market crashes, my portfolio does not collapse. It steadily trends upward, giving me a profound sense of security.
If I were much younger, I probably would have chosen a different allocation with a higher percentage of stocks. But as I progress in my FIRE journey, I realize that good investing is not necessarily about making brilliant decisions; it is about consistently not screwing up. This 60/40 allocation perfectly fits my personality and my need for peace of mind.
Conclusion: Find Your Own Balance
You cannot control what the stock market will do tomorrow, but you can control your savings rate and your asset allocation. Do not leave your future entirely in the hands of the government or your employer. Start your own personal tax-advantaged account, and build an investment portfolio that lets you sleep peacefully at night.