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SymbolicBlogNoticiasAt what age is it advisable to start saving for my retirement?.

At what age is it advisable to start saving for my retirement?.

21 Dec
Symbolic Monday December 21st, 2020 0

The future of pensions worries the majority of Spaniards. Nine out of ten believe that they will not receive a public pension when they retire or that it will not be enough to maintain their standard of living, according to an ING study. However, few Spaniards have gotten down to work and have started saving. According to the orange bank report published last November, seven out of ten have not yet started to do so. It’s never too late to start saving, but the earlier we start, the easier it will be for us to reach our goal. Several experts agree that a good time to start is when you enter the job market, when you begin to generate income. It is advisable to “plan for retirement savings at the beginning of your working life, as soon as you have the ability to save.” Why start when there are so many years to retire? The earlier we start, the less effort we will have to make to achieve our goal. “The greatest ally in a long-term investment is time and, in this sense, one of the great advantages of starting, as soon as possible, is that it allows compound interest to work for us.” Compound interest allows us to make profitable the profits that our savings are generating, so the sooner we begin to accumulate capital, the greater effect it will have on our final balance. In addition, the contributions that we will have to make each year will be less, since we will have more time ahead.

A practical example: suppose that we save 2,000 euros a year in a pension plan for 40 years and that we obtain an average return of 2% per year, at the time of withdrawing our plan would have a gross balance of 123 thousand euros, of which 43 thousand euros would be profit. Now imagine that we save for only 20 years. In that case, to achieve the same objective we would have to invest 5,000 euros each year and in the end the interest would only be 24,000 euros. On the other hand, the increase in life expectancy forces us to accumulate more capital, since we will have to stretch our savings for more years. “We are talking about many years of retirement for which we will need a good financial cushion if we want to maintain our purchasing power.” The third reason is that, if we start earlier, our profitability expectations may be higher. It is generally advised that as retirement age approaches, exposure to equities is reduced in order to maintain capital, while if there is still a lot of time left for retirement, we can prioritize earning more, even if that means taking more risk, as we will have more time to compensate for losses. Thus, starting to save when young “will also allow a portfolio (correctly diversified) with a higher risk to be assumed for a greater number of years, seeking a higher return”. Not investing all the savings in a pension plan.

We should allocate to long-term savings between 10% and 20% of our income and, of that amount, “between 30% and 50% could go to a plan to supplement our income once we retire.” In any case, the amounts that we can save will depend on what our salary allows us, but the important thing is to adopt a habit and not abandon it. Also, let’s not forget that pension plans have a maximum annual contribution with the right to deduction. If you choose to save with a pension plan, it is not advisable to invest all the savings in this product, since the money could not be rescued until after ten years if it is needed or until any of the contingencies established by law are met , such as long-term unemployment or serious illness.

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