I'm already retired, now what?

The most important thing you should do after retirement is to request your Social Security pension and reevaluate your situation.
As we near retirement age, a lot of questions come up involving how much money we'll have to spend each month. It's a time when we experience many changes, and must adapt to a new situation after so many years in work. Though for the vast majority of people, retirement is something we've looked forward to for a very long time, it's also a fact that our monthly income will go down. To avoid losing spending power, you have to do two things: request your Social Security retirement plan and consider any money you've saved that could supplement any hypothetical deficit on your income.

How do I claim my pension?

The retirement pension is calculated based on how much you've paid into Social Security in the final years of your work life (in 2017, the last 20, from 2022 the last 25). Therefore, the amount of money you'll receive is based on each of the regulatory frameworks and the amount of years you paid in.

To claim your pension, the first thing you need to do is come to one of the Social Security help and information centers. In the office, you will have to present the corresponding application form and have all the required fields filled out. These are:

  • Personal details.
  • Employment details specifying your last day of work.
  • Number of children (with birth dates).
  • Details on prospective pension.
  • Details of anyone you live with and any dependents.
  • Financial details.
  • Language preference and your postal address (other details).
  • Claims.
  • Pension collections.
  • Any work you've done abroad, if applicable.
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This form is available on the Social Security website so you can print it out and fill it in at home to expedite the process in the office.

The period for applying for your public pension spans from three months before until three months after you stop working. Your first pension withdrawal can take place from the day after you stopped working, as specified on your application form. If the papers required to claim your pension arrive after the three months, as specified above, your retirement pension payment can be made retrospectively up to a maximum of three months from the date of request.

How can I redeem my pension plan?

In case you require other income beyond the pension plan you'll benefit from, it's crucial that you follow the process with Social Security as mentioned above.

Once you complete this process, you have to go to your bank and arrange for the disbursement of the money you have saved in your pension plan. However, before redeeming the money accumulated in your plan, it's important you ask yourself a series of questions.

What do I need to know before redeeming my plan?

Before redeeming the money accumulated in your pension plan, you should stop to think if you really need it. This question is important, because if the public retirement pension lets you maintain your living standard and previous purchasing power, you may want to delay redeeming your pension plan until you really need it. If you don't recover the money, it will continue to yield a return from the plan and will predictably increase the amount of money that can be paid out later on.

Recover all or part of the money?

If, after doing some calculations, you arrive at the conclusion that you would indeed like to take the money from your plan, it's time to ask another question: do you just need part of it to complement your monthly public pension, or do you need all of it?

If the answer is the former and you only need a little extra to supplement the amount you get from Social Security, then the best thing to do would be to arrange with the bank where you have your plan to redeem it to provide you with a periodic income. That way, you'll only take what you need from the plan and the rest will continue to generate a return based on the residual funds. This option is much more beneficial from the point of tax payments. When you recover a pension plan, the payment you receive is seen just like any income you get from working. As such, your Personal Income Tax base increases, causing an increase in the taxes that you'll have to pay.

If, on the other hand, your answer is the latter, meaning that, for whatever reason, you need to redeem the entirety of your pension plan, this is possible too, however: you must take into account the tax payment, as explained above. As a general rule, a pension plan accumulates an amount of capital that, when redeemed suddenly, means it's probable that your Personal Income Tax base will increase to a higher bracket. Therefore, before redeeming everything, check if the forecasts for next year point to a reduction in purchasing power compared to the current year. If that's the case, the most recommendable option, wherever possible, is to delay the total redemption of your plan to a year when you have less income. In that way, the full amount of your taxable income will be somewhat lower and you'll pay less tax.

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What's the best way to collect my pension?

Once you've decided that you want to redeem your pension plan, you need to consider the best way to collect it. There's no one correct answer and the choice depends on everyone individually, taking into account your financial needs and always considering taxation. These are the ways you can collect your pension plan:

  • Redemption in the form of capital: recover all contributions made to the pension plan plus the income generated. Capital plus income make up your consolidated rights and, when recovering everything all at once, are also taxed only once as part of your Personal Income Tax.
  • Redemption in the form of income: the account holder receives a regular payment in the form of a salary or recurring payment. In the sense of financial income, the money is collected and your consolidated rights remain. This type of redemption is interesting if you want the money deposited in your plan to continue yielding a return, that will continue 'working' for you, if you really don't need all of the available capital.
  • In the case of a life annuity, this is paid until the beneficiary dies.
  • Mixed redemption: combine the two previous options. The account holder receives a payment of a given amount then, afterward, will be able to receive the rest of the money in the form of regular income over a stipulated period.
  • Flexible redemption: The beneficiary freely chooses the dates and amounts of the withdrawals, without any set frequency. The amount pending payment also varies according to the evolution of the share in the fund and its return.

If you've just retired or you're about to do so, BBVA can help you to plan for this next phase of your life.

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