Retirement and savings

Are pensions at risk?

Periodically, articles appear on the press about whether each country’s retirement pension system is sustainable or not.

This question depends on where we ask it, European countries, especially Mediterranean countries have a tradition since the XX century of public retirement pension systems, while Anglo-Saxon countries have a greater tendency towards private pension systems.

What is clear is that, on the one hand, life expectancy in developed countries is not only higher, but also of higher quality, so it is understandable the concern about whether or not we can sustain our level of life after working life.

On the other hand, this increase in life expectancy in many countries coincides with decreasing birth rates, so there will be fewer and fewer active workers per retiree.

Regardless of the system of public retirement benefits in each country, it is worth considering ways of saving to have extra income once you retire.

How to make the decision

When choosing between savings products, we have to do an analysis from two perspectives. First of all, from a personal point of view we must analyze.

                1 – Our age

                2 – Our “aversion” to risk

Why not the ability to save? Actually, in this matter there is a golden rule, whatever our income, we must invest only that amount of money that we do not need in the short term. From there, we will always find savings products to invest in.

Then, we have to analyze the savings instrument, we will take into account:

                1 – Your availability

                2 – Your safety

                3 – Your profitability

With these tools we can begin to analyze savings instruments. We are going to clarify that we are not going to consider here financial investment products (stock market, investment funds, etc.).

The Pension Plans

              We already talked about Pension Plans in another blog, and we saw that we had possibilities for all tastes in terms of type of investment, profitability and risk.

The great advantage of these products is their special legislation that provides greater investment security to the subscriber.

However, its great disadvantage is that they are more complicated products to dispose of, since the circumstances in which it is possible to rescue the investment are established, and although new possibilities have been added over the years, it does not become a saving instrument with immediate liquidity.

It is true that they usually have tax advantages, but this should not incline us for one investment or another, since it is a very fickle variable that depends on the rulers at all times.

We could say that they are recommended products for people who are already in middle age.

Retirement savings insurance

They are generally life insurance that cover the same rescue cases as pension plans, but add the possibility of being able to rescue themselves at any time, making them recommended for younger people.

The advantage of these savings products is their great diversity, it is almost certain that there is one suitable for each investment profile. On the other hand, they usually do not have tax advantages when they subscribe, but they do when they collect them, according to the redemption modality.

Redemption in the form of life annuities is usually more fiscally favorable, although this implies that it is not guaranteed that the entire investment will be enjoyed.

It is important in this type of products to know the profitability offered according to the level of risk assumed and the investment term, as well as the possible cost that it may entail (collection of commissions) when rescuing the investment outside the assumptions that the product contemplates.