How to Plan Retirement, Beyond the Pension Plan

Will there be a pension when I retire? Which pension plan is the most profitable? What could I do to have a decent retirement? The uneasiness to know how we will live when we reach old age has taken the street. Not only because current retirees are leading mass demonstrations. The latest CIS survey reflects that retirement concerns have reached record highs.

The distress is understandable considering many of the proposed solutions. Workers with increasingly diminished salaries have to listen to advice such as the one that is so conflictive about saving a couple of euros for the pension plan launched by the deputy of the Popular Party, Celia Villalobos, which, in turn, contradict reports that warn of the low profitability of those plans.

The lack of direction can also be seen in the fact that the most profitable pension plans in Spain have barely captured 4% of the capital invested in these products, while most of these products are concentrated in four or five-star plans, which are not always considered.

Why so much confusion? “What happens is that we are starting the house on the roof” says Belen.

This independent advisory firm, which has just opened a new headquarters in front of the Madrid Retiro Park, is committed to turning the strategy with which the financial future is addressed. “What calls planning is not sitting at a table and being told what financial product is better or that a robot calculates where to invest according to a profile. Plan for retirement is managing emotions” says the president of the company.

Somebody reassure you when the bags sink, or to advise you if you should take the money out of a fund to share the craving for your life or not.

What is Future Tranquility?

The first step in guaranteeing a retirement as comfortable as possible is “that each interested party defines what he understands for future peace of mind himself”, explains Alarcón. Not everyone understands the same for a comfortable retirement.

This is to complement the public pension (whatever it is) with about 1,000 euros. Have a monthly income of 2,000 euros. The more demanding the objective, the more effort will have to be made throughout life.

To achieve this, you have to work with the only tools that any saver has in his hands for employee benefits. Income, expenses and savings. With a lot of income, saving may seem easier, although it is not always because they are sometimes linked to many expenses. More important than the volume of income is the strategy to follow throughout life. “It’s about making personal investment decisions at every vital moment. The further you are from the moment of retirement, the easier it is to achieve the defined objective, ”warns Alarcon.

And making decisions is not going to the bank and looking for a good pension plan. It is also deciding whether to accept a job or another if you buy a property or invest in the education of children. Whether or not a certain trip is made. But not doing it based on the feeling of the moment: I feel like it or not. It must be done with the future objective in mind. It is not about not living in the present, it is about being aware of the decisions that are made in each moment and their future repercussions.

Define the Profitability Objective

Once you know where to go and the roadmap has been dealt with, the time comes for a financial advisor to calculate how much profit you have to get each year to get it. 2% to just beat inflation and not lose money? 5%, to get extra income, 10%?

“We must start from the basis that 80% of people are very conservative when it comes to preserving our money,” says Belen. When asked if you want to risk your savings or not, most answer no.

The Numbers Clear the Way

But decisions are made differently when they are not made based on feelings but numbers. What investment advisors do is draw the possible behavior of that decision on paper.

If we project the decision on income, expenses and savings of the client and it turns out that at 75 he runs out of money if his risk is conservative and if he risks something else he could reach 100, for example, then the decision usually changes. “It’s about teaching your present self, what would happen to your future self in different situations,” explains the planning expert.

Again there are several variables to play with: save more, find better-paid jobs, extend the expected retirement age, invest in this or that product.

Investing for retirement does not have to focus on pension plans. As the fund manager says “the best way to make money in the markets is to invest in a long term in a good fund or in a basket of various products and forget about money and the market ”.

That is why it is not enough that someone close is able to put distance.

The Pension fund, the only alternative?

In this line, He recalls “There is a study on some of the best funds in the world that offered a cumulative return of 15%, in which it was spy detected that those who invested in it systematically had losses. That was because they were not long enough. ” The funds are designed to obtain profitability within a certain period indicated in the output booklet. If the investor decides not to comply with it either for fear of the market situation, personal situation, etc., he may even have losses.

Choosing the right investment so that the savings cover what is necessary to ensure retirement is not easy. Heeding the massive recommendations would have to opt for the pension fund. In Abante game calculated that if one is identified with an adequate average return combined with tax benefits and Plan Retirement, it is a better option than a pension fund, even taking into account that taxes are paid at the end of the plan for retirement.

Tax benefit yes, but with the savings reinvested

But this result is the result of the premise that very few of those who invest in a pension plan meet. And that is to use those tax savings to invest in products that give more profitability than the Plan Retirement itself. That is to say if the savings plan consists in detracting money from our income, putting it in a pension plan and with what the Treasury returns, going on vacation, the pension plan advantage vanishes.

In an environment of negative interest rates and inflation, saving as our parents and grandparents did is no longer working. “ Taking some risk is inevitable. Our ancestors did not live for almost a hundred years as it will happen to us. Their recipes are not worth it because the situation is very different. We must learn to manage this new vital context. And the earlier you start it is easier.