With the arrival of tax season , more and more people are thinking about pension funds and how to get the most out of them.
People who participate in pension plans have benefits and many tax advantages; however, it should not be forgotten that the best benefit is long-term savings.
Today, we're going to create a short guide to help you learn how to get the best plan and what the main benefits of having a good pension plan are.
Choose pension plans
Are pension plans really worth it? What should you keep in mind?
- The number of years we live after retirement is high. Since after retirement you live many years, it is important that pension plans are taken into account that can get you out of one or more troubles. The occupancy rate of people aged 65 and over is very low and over time, an increase of up to 25% is expected.
- The salary received by people who have just retired is lower than what they received when they were an active worker. His salary is reduced by a total of 45% and it is expected that over the years, it will be reduced by another 30%.
- Given the unemployment rate in recent years and that the rate of jobless people is increasing, it is believed that the state will not be able to endure the purchasing power of public pensions. Experts believe that other financial formulas will have to be adopted.
- The government offers many tax benefits so that the hiring of pension plans can be promoted. The fact that these plans exist tells us about many requirements that reduce the taxable income.
- Most of the studies that have been done to be able to invest in pension plans, they are 60% to accumulate the savings that will be used in retirement.
- In many northern European countries, most of the people save for retirement by investing in stocks. In Spain it only does 25% compared to the other countries that do it 86.
The consequences of choosing the wrong pension funds
You might feel that any plan is good, however, due to many points of commissions or expenses or problems with inefficient management , the difference between a good plan and a bad plan can be as much as 18%.
Choosing the wrong pension plan can be the difference between having a good plan that generates future returns and having one that depletes your savings. The latter happens when we sign up for a pension plan but neglect it for years and don't monitor the actual returns being generated. This leads to poor management of our money by the banks, resulting in low returns.
Can this be avoided?
Yes, we Spaniards spend an average of 30 days to choose a car, however, we only dedicate 2 hours to choosing a pension plan. If we invest more time in the investigation and recognition of acquirers we will be able to have a good pension plan that begins to pay us back.
Smart investment in pension plans
1. All types of pension should be evaluated until you find the one you need.
The first thing we must keep in mind is that our plan must replicate the index. What we must ask our pension plan to return the level of profitability that we have given in the beginning. Searching for low commissions is the best option.
All the additional tenths that can be obtained in the pension plan is good for us and our plan, especially if we have very long investment terms.
2. You must start investing when before
A great example to demonstrate this point is the following. We have two friends, a and b. Our friend A is very cautious and starts investing at a very young age. The amount that he allocates to this fund is 1.800 euros per year since he is 25 years old and maintains it until he is 35, then stops.
Our friend B spends during his youth and at 35 he begins to save by investing the same amount as A for 20 years. Which means that B invested the same amount as A for 10 more years.
In the end, although B contributed more money for more years, the annual income of 8% gave A 282 thousand euros and B 220.
The number of years you have the money in the investment plan is much more fruitful than the number of years you spend putting that capital.
The idea is to make savings for a few years as soon as possible gives much more results than giving money at the end for more years.
If you decide to open a pension plan when you are still young, over time, the contributions you will make will be lower each year.
Furthermore, the younger you are when hiring your pension fund, the more profitable it will be for you.
If you open your fund too close to retirement, the pension fund, far from being profitable, will be a headache.
3. Contributions to pension funds must be made systematically
The key to having an incredible pension plan, the idea is to contribute early, but also do it systematically so that the highest profitability is achieved.
If our contributions are fixed and regular, when the pension plan's value drops, we buy shares at a better price. When those shares rise again, we'll realize the best return.
4. Great contributions at specific moments
When your income has fallen by 25% or more, you'll need to contribute a significant amount extra. If you've chosen a substantial pension plan, the returns will be much larger over time. To maximize your returns, you'll need to be patient. Keep in mind that in most cases, pension plans cannot be withdrawn.
Pension plans, mutual funds or investment plans for systematic savings?
Today, with the changes that have been created in personal income tax, it is true that the advantages have been reduced a little, becoming like the pension fund or systematic investment plan that today give almost the same benefits.
These are the main differences
Liquidity.
As long as you have an investment fund, they will be much more liquid. In addition, they are currently reduced by a total of 5 to 10 years and the minimum contribution will be systematic savings.
Most pension plans can be rescued within 10 years, however in retirement plans, it cannot be done except when there is a prolonged unemployment or some type of serious illness.
Flexibility
In mutual funds and pension plans, the amount of income can be changed.
Taxation
All equity alterations in the funds are taxed at 21%. This compensates for other types of variations.
The types of contributions in pension plans end up deducting through income tax. Most redemptions are taxed as earned income.
What then should be taken into account
As you can see, in most cases, pension plans are good in every way for people who are looking to save and who actually have the time to be reviewing such investment funds.
Reviewing the returns year after year , and above all, having a fixed annual amount that doesn't change, are the best options to get the most out of your pension plan.
Very few entities offer financial planning that can give you the maximum return in a personalized way, so you should consider how the planning rates have been with that type of pension plan , as well as the savings amounts up to the time of your retirement.
The entities have some guidance tables through which you can guide yourself and thus know what is the amount of savings you will have at each moment of your life.
Don't neglect your pension plan and review the annual amounts to avoid receiving payments to the entity with almost zero profitability when you reach retirement.