How to plan for your retirement

We explain all the available options to reach retirement with the necessary savings to maintain your lifestyle.

In Spain, planning for retirement is something that is still largely neglected. As well as the absence of a culture of having additional savings products, retirement is seen as something far off in the distance, and daily worries distract us from focusing on it as an objective. Young people tend to save primarily to leave home and become independent, or, better still, to go traveling around the world. Indeed, those with jobs and a decent salary can afford to think about these “indulgences”.

Due to the current job uncertainty, it's no wonder that people prioritize other needs over planning for retirement. However, experts recommend that we start to think about retirement, if not upon receiving our first paycheck, then as soon as possible. This recommendation reflects pure logic, since the greater number of years you invest in saving, the more money you will have accumulated when the time comes to retire form working life. This way, you can make the most of the multiplier effect of long-term saving and also make the savings target a bit more bearable by giving you longer to get there. In many cases, all you need to do is modify your mindset and see planning as an extra, yet minimal, expense that you make each month.

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But, why is it so important to plan for retirement? Despite the lack of importance that most people place on planning for retirement, it has always been an important issue to consider. However, if you analyze the current situation, not just in terms of employment, but also the present and future of pensions, it would be fair to say that we are currently living at a time in which planning for retirement is almost necessary. By doing so, we will ensure our financial independence and the same pace of life once the time comes to retire. On the other hand, if we fail to plan, our financial future will depend on the state pension which, most likely, will not be enough to satisfy our needs. This is because pension payments are destined to decrease over the next few decades as the system struggles to respond to a significant demographic challenge.

Planning for retirement can seem complicated if you have never thought about doing it. However, there are certain steps to take and a wide range of banking products that make the saving process very easy. All you need to do is find out about these products and choose one that meets your requirements.

Calculating your pension

Before settling on a savings product that allows you to plan your retirement, it is important to estimate the State pension that you would be entitled to. This will give you a rough estimate of how much you will receive when you stop working. Also, you can find out how much extra money you would need each month or year to maintain your current or planned lifestyle. Based on your calculation of how much money you need to save, you can then choose the most suitable type of product and the amount of money to invest each month.

To calculate your retirement pension, you first need to know the calculation basis. To do so, according to current regulations in 2018, divide the contribution bases of the 252 months (21 years) by 294. This excludes the contribution basis of the month of the triggering event and the previous month. Let's take the example of a worker whose contribution bases of the last 252 months total 378,000 euros. The calculation basis would be obtained by dividing this figure by 294, which equals 1,285 euros.

The last step to calculate your retirement pension is to apply the percentages determined by the contribution period to the calculation basis. In 2017, 50% is applied if we have paid contributions for 15 years, while 100% is applied for contributions paid for at least 35 years and 6 months.

Of course, this is just an estimation. However, at this stage, it is worth applying the maximum percentage because, upon reaching the age of retirement, we will have made sufficient contributions to receive a full pension (100%). Nevertheless, it is important to remember that this prediction may not be fulfilled for different reasons, such as losing a job or a change in legislation. However, by planning for retirement, we are putting ourselves in the best possible situation. And if this seems like a small amount of money to you, it is a clear sign that you need to start planning for retirement as soon as possible.

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Products to reach retirement with savings

Once you know more or less your retirement forecast, the next step to plan it is to visit a bank and arrange the savings product or mechanism that best suits your preferences and needs. Here are a few key products from a wide range of offers:

  • Pension plans: a financial product designed exclusively for generating savings to supplement the state pension when you retire. After taking out a pension plan, you will make regular payments (normally monthly or yearly) and you will recover the full amount when you retire. In addition to being a kind of piggy bank, a pension plan offers attractive tax benefits during the period in which contributions are made. These include a reduced tax base for the Personal Income Tax (IRPF) for contributions made to the plan up to a limit of €8,000.
  • Life Annuity Insurance: a type of insurance that guarantees that the holders who make contributions will receive an income until their death. It works very simply; a customer who takes out this insurance makes a capital contribution (single premium) or several contributions (extraordinary premiums) and, in exchange, receives a regular monthly, quarterly, or annual income. The amount received depends on the total amount contributed to the insurance plan and the yield of the insurance. In addition, depending on the customer's age, significant tax reductions are applied to the income received.
  • Guaranteed Benefit Plan: a very similar product to the pension plan, but with two essential differences. Firstly, a guaranteed benefit plan guarantees a set interest rate throughout the contract term. In addition, it offers the possibility of covering an additional capital in the event of death or disability.
  • Individual plans for systematic saving: a financial product intended for long-term saving through regular or sporadic contributions. The distinctive feature of individual systematic savings plans is that the maximum annual contribution is limited to €8,000 and the accumulated life savings cannot exceed €240,000. In other words, these plans involve set maximum limits, whereas other similar products do not.

Whatever age you are, if you are already in the world of work, now is the time to think seriously about planning your retirement. If you want to simplify the process of comparing and applying for savings products, please visit and explore our extensive catalog. As well as getting quick and easy access to the wide range of simple saving solutions, you can also calculate your future pension. BBVA is your perfect ally for saving so you can enter retirement with the peace of mind of having already done your homework.

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