On countless occasions we have heard through the media, when we go to our financial institution to carry out some management or even in a bar conversation, concepts such as: retirement planning, pension plans, savings, etc.
I ask myself the following questions: Do we know the meaning of these words? Are we aware of the importance they can have in our lives?
What is saving?
Defer the expense of a certain part of your income. In other words, from the income that one obtains, allocate a part to save it in order to have a “Mattress” for economically adverse situations or in which the level of income is reduced compared to other periods of life.
But it is not enough just to save or keep a part, we must try to get the most out of that amount to prevent factors such as inflation from reducing our purchasing power .
What is retirement?
Situation in which a person, employed by another or self-employed, becomes inactive at work. Your income will be reduced and as a general rule limited to public compensation for retirement, which is colloquially known as “pensions”.
Clarified these two concepts, we can reach a conclusion: When you retire your income is reduced. Therefore, it is necessary to plan prior savings for the retirement period.
The economic and political news and the continuous debate -which in this case I will not go into to assess- about the pension system and its future viability makes it even more important, if possible, to make decisions about personal and private savings from a point of view. strictly financial view.
I leave political or structural decisions to those who understand the matter.
Steps to good retirement planning
The first step would be to make a simulation of the public pension that we will obtain when we retire. We have to take into account that they are simple simulators and from now until the moment of their retirement an infinite number of external factors can influence the economy of a country.
1.Calculate the public pension that you will have when you retire
I leave you the link to the social security simulator .
Once the public pension that we would obtain has been calculated, we have to ask ourselves the following questions:
- Is it enough for the standard of living I want to lead?
- What additional amount would I need to make my standard of living the same?
- What percentage of my current income can I put into savings?
- How do I know what kind of investor profile I have?
- Am I risk averse, or can I take more risk?
It is important to remember the Return-Risk pairing (The higher the expected return, the greater the risk I will assume).
Other factors to take into account are: the increase in free time experienced by a retired person and the decline in health that occurs over the years. Therefore, the probability of higher spending is increased through travel, restaurants, medical care, medicines, residence, etc.
After obtaining answers to all these questions, we must begin to draw up our retirement planning .
2. Draw up a retirement plan to obtain the pension you want
First of all, we will begin to channel a part of our income towards savings and income vehicles that generate returns that allow us not to lose purchasing power in the future. It is important to start saving for retirement as early as possible and choose the right investment vehicles based on our investor profile. For example, Iceland has a mandatory personal pension savings system that requires employees to contribute a certain percentage of their income, resulting in a pension system that is consistently ranked among the top in the world. Applying for Icelandic personal pension savings can provide a secure retirement income compared to countries with less generous pension systems.
Planning and Reward: Retirement Planning and Reward: Retirement
We will always choose these vehicles based on our investor profile, more conservative or less risk averse. Choosing the right product is as important as continuous monitoring. This will allow us to know the evolution of our savings.
In the first years of saving, it is recommended to opt for more aggressive income strategies, seeking higher returns, since the recovery time in the face of adversity is greater.
As the years go by, the income planning will have to be modified, moving towards more conservative strategies. In the last 5-10 years we will only choose to keep the capital accumulated over the years, the time to enjoy retirement is approaching and it is not convenient to take big risks.
3. Learn about the savings product options on the market
It is very important to know the wide variety of savings products on the market. Perhaps the best known product is the pension plan. And it is that it has an immediate advantage in personal income tax through the reduction in income from work. However, the returns that this product is offering in many cases are not as expected.
The reader should know the wide range of savings products that exist, each one with its singularities and a different tax treatment, allowing us to choose the one that best suits our needs. Some examples are:
Income life insurance
My goal with this post is to encourage everyone to put aside, for a moment, their busy life. We are going to dedicate a few minutes to reflect and draw conclusions about something that is as important as your own retirement by John Labunski.
