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Save for Retirement
It tips on How to save for retirement is probably one of the most critical monetary planning milestones in a person’s life. However, inappropriately, it is not always given the importance it requires. In Spain, two circumstances coexist that often hinder this task: on the one hand, there is no general deep-rooted culture of savings and financial planning. People usually save sporadically, without a specific plan, and many live without a minimum-security investment cushion. On the other hand, as far as superannuation is concerned, Spaniards have put all or a good part of their destiny at this phase in the public pension, somewhat that has been able to effort in the past, but which future ones should not cling to retirees: the generosity of future pensions will fall very noticeably.
Tips to Efficiently Save for Retirement
1. Start as far in Advance as Possible
Time is an essential ally in this impartiality. It will make an exertion more gradual and allow for dealing with possible contingencies. Although it is not yet common in Spain (it is in other countries), the ideal time to start saving for superannuation is after obtaining our first job.
2. Make a Detailed Plan
Saving does not usually work as a simple habit of saving money. Instead, make a plan in which you are clear about your starting point, the capital you have and will have, and, overhead all, where you want to go, that is, how much you will need in your retirement.
Thanks to the simulators that allow you to estimate your future public pension, such as the My Retirement Public Pension Calculator, you can do this exercise. Your savings goal should be the one that allows you to cover the gap between the monthly revenue that your pension will provide you and the level of spending that will require the standard of alive you intend to lead when you retire.
3. Save Constantly
It’s better to save a modest amount each month than more significant amounts sporadically. This is a long-distance race, and regularity will take you to the finish line with success. Do not dismiss small savings as irrelevant: they work miracles in the long run if saved consistently.
Choose the Savings Cars that Best Suit your Needs
One of the best axes around which saving for retirement should revolve is a pension plan or insured forecast plan. The reason is that they allow contributions to be deducted annually in personal income tax up to a maximum of 8,000 euros. This represents a significant tax saving that can make a difference in your savings plan if you reinvest that money you save on taxes. Investment funds are a perfect accompaniment to pension plans when you have donated the maximum allowed by law. Other exciting options are savings insurance or PIAS.
How to Calculate the Pension and Save for Retirement Age?
The retirement stage, as well as the amount received, varies depending on each person since it depends on many factors such as the number of years worked, the salary received at each stage of working life, the regional and national public policies of the country of residence, the type of working day you have had in each job, or even whether retirement is early or partial, among many others. All these factors must be considered when calculating any person’s retirement pension. First, however, suppose we want an approximate idea of what it may be. In that case, we can visit the official pages of the organizations regulating pensions in our country of origin or simulators of benefits similar to this one from Open bank or Santander Brazil.
How to Improve my Finances and Save for Retirement?
Starting to plan for improve retirement early is one of the first steps in ensuring our financial health after our working lives. During the active years, we will have a lot of expenses and time to increase our savings for the future. To ensure that we encounter this objective, as recommended by the Finance for Mortals gateway, we can follow the following advice:
- Stipulate approximately how much money we will need when we retire and the standard of living we want to maintain.
- Calculating the pension we will have left will also give us an approximation of how much additional money we can save by then.
- Decide at what age we are successful in starting saving for this purpose. As highlighted in this content from Santander Portugal, saving for retirement is a marathon, not a sprint. We must therefore consider saving for retirement as a long process.
- Establish a specific economic goal for our retirement, although this may vary depending on whether our retirement is early or partial.
- At that time, we can set a specific amount of how much we want to save relative to our annual salary and stick to it. In this Santander Portugal article, you will discover how to start saving for retirement.
- Please take advantage of our salary increases in our professional lives to increase our savings account proportionally.
- If we have a mortgage, finish paying it off before retirement to help reduce the expenses we will have then.
- Know what tools we have to save and what tax advantages accompany them.
What is the Best Way to Capitalize and Save for Retirement?
In this sense, there are various products focused on long-term savings that can be especially useful for our retirement. Let’s get to know some of them in detail:
1. Pension Plans
They are products specially created to save for retirement. For example, a private pension plan is a “piggy bank” in which, with a particular frequency, we deposit a specific amount of money from our pocket, that is, a long-term savings instrument to obtain profitability. The funds deposited in our pension plan will, in turn, be invested in other return products that we will have previously determined together with the professional in charge of managing it. In general, these products also have tax advantages that will depend on the territory where we reside. To learn more about this product, you can visit this Santander Consumer article.
2. Investment Funds
An investment fund is a handy instrument for saving, and it works as follows: a group of people participate with their money in a standard “piggy bank”. A team will treat the invested capital of professional managers who, in turn, will allocate it to different financial assets to earn money with said investment.
3. Saving Accounts
There are various types of bank books that can be very useful to us depending on the moment we find ourselves. For example, a savings account is a financial product that allows us to produce a certain amount of money in exchange for putting part of our savings in a specific report that we can access at any time. In addition, this article from Santander Argentina explains the advantages of certain types of bank accounts.
How to Save Money for Retirement?
One of the keys to increasing your pension is to start applying tips today, such as:
1. Be Consistent in Paying Contributions
Did you know there is a straight association between the amount of the pension and the years of contributions?
According to statistics from the Superintendence of Pensions, until March 2021the average amount of the self-financed pension was UF 21.95 for retirees who contributed between 35 and 40 years. On the other hand, the average decreases to UF 0.26 for retirees with up to 1 year of contributions.
2. Choose the Right Pension Fund
In Chile, there are five types of pension funds:
- Fund A – Riskier
- Fund B – Risky
- Fund C – Intermediate
- Fund D – Conservative
- Fund E – More conservative
Returns are usually higher in risky funds, where investments are concentrated in equities. Meanwhile, conservative funds invest primarily in fixed-income instruments that, while offering lower returns, provide greater security.
To choose a fund that suits you, think about how long you have until you retire. In this regard, it is worth stipulating that those ready to retire cannot opt for the riskiest funds (A/B), a measure that aims to protect their savings.
This is, without hesitation, one of the main ways to make your savings profitable. If you have a considerable amount, a suitable alternative may be the real estate market; Otherwise. If you can think about setting up a business -and make your dream of being an entrepreneur a reality- or opt for investments in banks. In such as Mutual Funds or Time Deposits.
4. Cut Expenses
Take an inventory of your expenses and discard the costs that are not essential. The money that will begin to be left over. It can be deposited as a voluntary contribution to your Pension Fund Administrator (AFP). This extraordinary contribution will be added to your capitalization account.
5. Choose a Voluntary Savings Tool
As you know, contributing to an AFP is mandatory, but there are also voluntary savings options that allow you to have an additional amount to your pension when you retire. The main ones are:
Voluntary Pension Savings (APV): You can make regular deposits to supplement your retirement. A unique feature is that, if you need it, you can withdraw part or all of the resources before retiring, although you will lose state benefits.
Life Insurance with Savings: It is a financial instrument that. In addition to providing financial protection to your recipients in the event of death. If allows you to generate savings that -in the case of Penta Vida. If you can manage up to 7 investment alternatives that include fixed income, guaranteed, variable and balanced.
Within all the financial planning that takes place throughout our lives. It how to save for retirement is one of the most dangerous points of it. And at the same period, one of the most forgotten. On many occasions, when we ask ourselves about saving for retirement, it is a little late, and doubts. A burdens arrive. Currently, we tend to cling to the corresponding public pension, but looking to the future, we face uncertainty.