Tricks to help you save for retirement

We give you advice so you can save for your future retirement

Saving for retirement is always a good idea. The future of public pensions points towards them being able to provide an ever lower level of income compared to that received in the final years of working life, meaning that personal savings become essential in order to enjoy the standard of living desired.

When should I start saving?

The sooner, the better. In this respect there is no doubt, and if you really want to assure a good capital which you can access as a supplement to the state retirement pension, starting as soon as possible to save a percentage of your monthly salary is one of the keys to any saving strategy. Saving early dilutes the effort required and also allows you to deal with unforeseen events.

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The ideal time to start saving for retirement is as soon as you join the labor market. It doesn't matter if you can only allocate a small percentage of your salary to saving at this time: What's important is to start saving on a regular basis.

This last point is very important. It's not much use starting to save at the age of 30 if you don't do it regularly. It's better to contribute small amounts consistently than larger amounts sporadically. We recommend you set up a regular standing order to another account as soon as you receive your salary.

How much should I save a month?

It's quite simple to calculate how much money you need to save each month in order to ensure a comfortable retirement. First, you can calculate the pension benefits you will receive after retiring by using pension calculators. At the same time, you should calculate the income you think you will need to enjoy a comfortable retirement. The necessary savings at the time of the retirement will be the amount that, for the applicable life expectancy, covers this differential between financial needs and income from the public pension.

The amount of money you need to save each month also depends on when you start to save. Here, the rule is simple: the later you start to save, the more money you should allocate in order to ensure a worry-free retirement.

More specifically, experts recommend trying to save around 7-10% of your income. This figure can vary according to your savings strategy, and this is where the different savings and investment products designed to ensure a worry-free retirement come into play.

Where should I invest my savings?

If you start saving for retirement early and, above all, if you are consistent in your saving, within a few years you should have a significant amount of capital to invest. This way, not only will your contributions increase your ‘retirement piggy bank’, but the returns generated by your investment will do so, too.

There are many savings instruments that invest the capital deposited and provide an interesting return. Pension plans are one of the most popular savings products in Spain, given the wide range of plans available, allowing all investors to find a plan that suits their needs, and also because they are easy to set up.

Savings are invested depending on the type of saver and the stage they are at in life. Young savers should opt for assets that seek higher returns, even if they entail a higher risk, given that the long amount of time until retirement allows risks to be assumed. The approach is the opposite for savers that are close to retirement. The assets recommended for each case are, respectively, equities and fixed-income.

Those that do not want to think about this transition between types of assets as time passes can opt for life cycle pension plans, the management of which is automatically adapted to the maturity date of the plan, which will be a date close to the retirement date.

The type of savings product will also depend on the saver profile. Those close to retirement can opt for retirement insurance, which as well as covering the retirement contingency, can be converted into lifetime annuities. These are ideal for supplementing the state pension and also offer significant tax deductions. The youngest savers can opt for collective saving vehicles such as pension plans, which also offer sigificant tax incentives when making contributions.

The advantages of saving with a pension plan

Pension plans are attractive because they include tax benefits and offer flexibility when making contributions or transfers:

  • Tax benefits: Contributions made to pension plans are tax-deductible for Personal Income Tax purposes, reducing the taxable income base and allowing the taxpayer to benefit from an interesting tax saving. The maximum amount that is tax-deductible each year will be the lesser of the following amounts: 8,000 euros or 30% of the net income from employment and economic activities.
  • Saving discipline: Contributions to a pension plan can be ad-hoc or periodic. It is possible to automate contributions to a pension plan with the frequency desired, which helps to maintain a saving discipline during the years prior to retirement.
  • Possibility to mobilize the consolidated rights by transferring the funds to another pension plan or to a guaranteed benefit plan. This way, we can easily move our savings to products that meet our needs at all times.
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The saver's motivation

To implement all the strategies and tricks mentioned above, there is a fundamental factor without which the saver will not achieve their goal: motivation.

Starting early and perseverance are crucial factors in saving for retirement. However, when there are still three or even four decades to go until retirement, it can be difficult to see the need to save. We tend to have a short-term view and also to think that the public pension will be enough to maintain an adequate standard of living, when in reality, after retirement, workers usually lose purchasing power.

Therefore, to try to foster that motivation, it is best to know exactly what level of saving is needed and to establish a plan to meet it. Will you want to travel after retiring? Will you want to have that house or car you always wanted? These are motivating ideas, to which we can add some others that are less appealing but still very important, such as the need for medical care in our old age. For better and for worse, having a good level of savings in retirement provides peace of mind that you can't put a price on.

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