On a day-to-day basis, we meet many clients who, when they reach retirement age, tell us that they wish they had taken care of this issue earlier. Today we will look at when it is advisable to start and how to choose the right product for you.
The earlier we save, the better for retirement
Financial planning for our retirement you can't leave it until you're 55-60 years old., This is because it will not generate enough profitability to live on it in the future, and even more so, knowing that public pensions rise by 0.25% annually, and probably with the reforms that are about to come, they will not exactly improve. We should think about saving as soon as possible, even in small amounts.
Here is an example200 € that we save today, in 30 years at 4% annual interest, is approximately 650 €. That is: what we put now in our savings insurance, whether it is a PIAS, a pension plan, etc., triples in 30 years. This is possible because the yield of the first year accumulates, and the following year the yield generated causes there to be more interest.
This is what is known as compound interest, the famous effect of the “snowball”.”interest carries more interest.
However, you have to be well advised not to make a mistake in the way you do it. Not all existing products should be offered to everyone (we think so, we have learned the hard way). Here is an example.
Risk profile and time horizon
It is necessary to be clear about the so-called “risk profile”The aim is to prevent a person from taking more risk with his or her money than is really desired. This is why one has to be careful with year-end campaigns in pension plans.
Similarly, the «time horizon» of our savings or investment, which is the time in which we will either want to recover our investment or we are required to maintain the product without redeeming it, is a very important issue to assess.
Let's take an example: a young couple, with an average income, should probably not subscribe to a pension plan, because they will lose the availability of that money for at least 10 years, and in the event of any unforeseen event or desire to buy a car, a house, etc. they will need that money. Therefore, it is totally incoherent that when taking out a mortgage we are required to subscribe to a pension plan in order to improve the interest rate...
We are at your disposal to advise you on the best savings option, depending on your family and professional circumstances. Whether it is a guaranteed return product, without risk, or another with mixed and variable income options. In this post we explained how the savings insurance is a very good way of channelling those savings.
The difference between savings and investment
Not only that, but we also believe it is important to differentiate between what is considered savings and what is considered investment:
- Savings: periodic contributions to a future savings product, in which these contributions are capitalised and generate interest. This would be a pension plan, PIAS, SIALP, or savings plan, basically.
- Investment: when there is already accumulated capital, decide what to do with that money. Investment funds, unit-linked products and deposits are examples of investments.
At the same time, it is important to know that, in non-guaranteed products, it is better (in order to avoid taking greater risks) not to contribute all that money at once, in one go.
Why? Quite simply: if you invest, for example, €50,000 in an investment fund and you have chosen a time when its assets are highly appreciated, this investment can probably only go downwards, resulting in losses; on the other hand, if you invest €25,000 now and €25,000 in 6 months, you avoid accumulating the risk at a given moment in time. With regular contributions we avoid the so-called “entry risk” completely.
If you want to get good advice, contact us. With more than 20 insurance companies and a huge diversity of products, we will find the one that best suits your needs. Whether it's a pension plan or one of our savings products with more liquidity.
