5 Solutions to Renew Luxury – ECO

Thinking about retirement after 20, 30 or 40 years is not a fun exercise. If the Portuguese who will retire in the next 10 years are guaranteed, with their retirement worth between 74% and 81% of their last salary, since then, this is just bad news. In Portugal, the sustainability of social security is back on the media agenda due to a change in the model for calculating pension increases, and the Organization for Co-operation and Development (OECD), for example, estimates that Between 2025 and 2050, Social Security will only be able to pay an average of 63% of your last salary. So it is important to act now.

The first step to building a strong pension capable of providing peace of mind when retirement knocks is to solve the math. For example, if you expect to need 2,000 euros per month during retirement, this means that Social Security will have to pay only 1,260 euros (63% of 2,000 euros). The rest, €740, has to come from somewhere else.

After that, it is necessary to estimate how many years of life you will spend after leaving the active life. The retirement age is currently 66 years and 4 months, according to the latest estimates death tables From the National Institute of Statistics (INE), life expectancy at age 66 is over 18.55 years. This means that today the Portuguese reach the legal retirement age, on average, up to 85 years.

Putting all of these variables under the equation, a good starting point for estimating the value of the retirement supplement to be built is to multiply €740 by 14 (12 months plus two, as if it were a holiday and birthday allowance) and then, multiply by 20 (rounding life expectancy in retirement age). According to our example, it will be necessary to strategize up to 207 thousand euros when the repair knocks on the door. The question is: How do we achieve this?

A good starting point for estimating the value of the retirement supplement to be built is to multiply €740 by 14 (12 months plus two, as if it were a holiday and Christmas allowance) and then multiply by 20 (rounding life expectancy at retirement age). According to our example, it will be necessary to strategize up to 207 thousand euros when the repair knocks on the door. The question is: How do we achieve this?

The answer lies in a disciplined savings strategy that is started as early as possible. For example, if you start saving €90 per month, and increase that amount by 2.5% each year, in 40 years you will reach the €207,000 needed, assuming an annual return on investment of 5%. But if you start preparing for your retirement only 20 years after the arrival of the “golden years”, your monthly savings should be 382 euros.

These accounts can get even more laughable. It is sufficient for the retirement supplement to remain invested, albeit at lower risk, after retirement.

For example, suppose that in the first month of retirement, in which you receive your first Social Security pension, you take back your retirement premium and put it into a term deposit that will yield approximately 0.5% annually over the next 20 years. Even taking 740 euros of the “cake” each month to complete the pension paid by Social Security, you will reach the age of 85 with more than 43 thousand euros in your account.

Is PPR a solution to ensuring a good repair?

There are a range of financial products on the market to invest in for retirement. From mutual funds to pension funds, through capital insurance and popular retirement savings plans (PPR), there are many options available to investors.

Among the most popular is the famous PPR which, according to the latest available data, had more than 2.1 billion euros under its management in 2020. Of this pie, 80% was invested in PPR in the form of insurance and the rest in the form of investment funds.

PPRs were a suggestion from several governments on the pension problem, which encouraged families to participate in and give away. Tax advantage equivalent to 20% of deliveries, up to a maximum of €400. Additionally, these products also benefit from an exit tax advantage, whereby the capital gains generated are taxed at the effective IRS rate of 8% instead of the traditional rate of 28%.

At first glance, considering all the tax benefits they offer, PPRs seem to be an interesting solution to building a good retirement supplement. But they are far from being a solution for everyone.

According to a compilation prepared by the Economic Cooperation Organization, at the end of last year, there were 751 active PPR reports, divided between PPRs in the form of insurance and investment funds. However, only 99 were on sale (allowing new subscribers to enter).

The performance of most of these products is far from great. In the past three years, which is one of the most profitable periods for investors, PPR reports currently being sold have recorded an average annual rate of return of 3.6%. There have even been three PPRs reporting losses in this period.

Generally, The performance of PPR is completely unstable. Moreover, many of them are particularly expensive. There are cases where a maximum reimbursement fee of 15% plus a maximum underwriting fee of 29% is allowed, as is the case with the Misto BA PPR, of the España Compañia Nacional de Seguros. In the long-term investment plan, as he intends to build a complement to the reform, all these points prove to be detrimental to the achievement of the set goal. But there are good exceptions in the world of PPR.

In general, performing software performance reports is quite risky. Moreover, many of them are particularly expensive. There are cases where a maximum reimbursement fee of 15% plus a maximum underwriting fee of 29% is allowed, as is the case with the Misto BA PPR, of the España Compañia Nacional de Seguros.

This is the situation PPR SGF Stoika fund managed by SGF – Sociedade Gestora de Fundos de Pensões which, following a highly equities-exposed strategy, has achieved an average annual rate of return of 10.55% in the past three years (2019-2021), and in the past five years has provided gains to its subscribers of 5.59% per annum .

Another good exception is Invest AR PPR, operated by Invest Gestão de Activos for more than 20 years. With a more conservative strategy, limited to a maximum exposure of 40% in stocks, this PPR represents an average annual return of 7.6% over the past 10 years.

Simplify your retirement and leave it on autopilot

Taking into account the performance of stocks since the beginning of the year, they are the assets with the greatest potential for determining a long-term investment strategy. Jeremy Siegel, Professor of Finance at The Wharton School, University of Pennsylvania, reveals in his book “stock long term“what or what,”In the long run, stocks yield a return of 6% to 7% per year, net of inflation.”For example, the average annual performance of 8.31% of US stocks in 1802 and 2006.

Investor Warren Buffett is one of the most successful cases of investing in stocks. With Berkshire Hathaway, this octogenarian American and one of the five richest men on the planet has earned an average annual income of 20.1% since 1965, twice what the market offered in the period.

However, buying and selling stocks is not the easiest task for most investors. Walking the market in search of a basket of securities that can produce good results requires knowledge and a long time to investigate and study.

Therefore, the best way to build an equity-rich retirement supplement may be to invest in an equity investment fund that is fulfilling two conditions: It has a sufficiently diversified portfolio by sectors and geographies and allows for the promotion of small volumes.

An example is Fidelity MSCI World Index Fund P Acc EURa global equity fund that replicates the index MSCI World (consisting of more than 1,500 companies) that have a minimum investment to subscribe to a Participation Unit (currently priced at €8).

Another solution that can be considered for building an egg nest for regeneration is life cycle funds. Designed within a matrix that allows automatic exchange of shareholder positions for less risky securities over time, these funds have the potential to become more conservative products as retirement age approaches, thus providing more security for the built pie.

With the same diversification principle, listed global funds also appear, such as iShares Core MSCI World ETF Acclisted on the Amsterdam Stock Exchange. It also repeats the global stock index MSCI World, but unlike the Fidelity Fund, it trades like a stock and has lower management fees. However, since it is exchange traded, it is subject to broker trading commissions – which is why you must need higher boosts to justify paying commissions.

Another solution that can be considered for building an egg nest for regeneration is life cycle funds. Designed within a matrix that allows automatic exchange of shareholder positions for less risky securities over time, these funds have the potential to become more conservative products as retirement age approaches, thus providing more security for the built pie.

This means that, for example, if you want to retire in 2040, you can sign up for Devotion Goal 2040 From €100 and for reinforcements also from €100. Then let the cake grow on autopilot for the next 18 years. At the end of that time, you’ll be ready to reap the rewards of nearly two decades of savings.

NB: This news does not excuse you from referring to the official information of the specific financial products.