With the increase in average life expectancy, saving for retirement is a necessity. Well-structured planning allows you to guarantee financial peace of mind and maintain quality of life in your golden years, without relying exclusively on social security.
Retirement is a phase of life that many look forward to, but not everyone is adequately prepared for. The increase in average life expectancy means that we are going to live longer, which implies that we have sufficient financial resources to maintain our quality of life. In Portugal, the retirement age is gradually rising, reinforcing the need for careful planning.
In order to maintain a lifestyle similar to the one we enjoyed during our working years, we need to plan for retirement in advance. In fact, this should be a lifelong goal. It is, therefore, advisable to start thinking about retirement savings as soon as you enter the job market.
In this article, we explore the reasons why you should start saving as soon as possible and explain how you can build a future with more financial freedom.
Find out why saving for retirement is essential
According to recent data released by the National Statistics Institute (INE), the average life expectancy in Portugal is 81.17 years. Therefore, at the age of 65, an average of 19.75 more years of life is expected. In other words, retirement could last two to three decades. To ensure a smooth transition to the golden years, you need to save consistently and regularly in order to have a substantial retirement fund.
Although most people rely solely on Social Security to cover expenses during retirement, this approach is no longer enough. Nowadays, you need something to supplement that financial gap, which can easily be solved with retirement savings funds or investments. This way, you can maintain the standard of living you had when you were working.
But how can you do this? Read on and find out.
Which financial products allow you to save for retirement?
There are different ways of saving for retirement that suit different risk profiles and individual preferences. Besides the traditional options, such as term deposits, investment in land, real estate, gold or art, the financial market offers a wide range of products that can be used for this purpose, including:
- Retirement Savings Plans (PPR);
- Savings Certificates and Treasury Certificates;
- Investment Funds;
- Shares;
- Real Estate.
The Portuguese population prefers to invest in PPRs because they are easy to join and the initial investment is low. However, as mentioned, the offer is varied.
The benefits of proper retirement planning
Effective retirement planning guarantees greater financial security, freedom and flexibility to enjoy the golden years in the best possible way and without economic worries. In fact, investing in retirement planning has a number of benefits:
- Financial independence: allows you to depend less on others during retirement, relieving pressure on family members;
- Improved quality of life: guarantees you stability and the freedom to enjoy your hobbies and passions;
Tax benefits: products such as Retirement Savings Plans (PPR) and Investment Funds offer tax advantages that help you maximize your investments.
Wanting to invest isn’t enough. You need to be aware of the best strategies for doing so. Here are some suggestions for building a retirement savings account:
1. Start saving as early as possible
The earlier you start investing, the greater the impact of income capitalization. Imagine investing 1,000 euros a year with an annual return of 5%. After 30 years, the accumulated value could exceed 80,000 euros, thanks to the reinvestment of interest.
2. Enjoy the tax benefits
PPRs are excellent tools for accumulating long-term savings. You even benefit from tax incentives. Depending on your age and the amount invested, you can deduct up to 400 euros a year from your personal income tax:
- People under 35 can deduct up to 400 euros, with an investment of 2,000 euros;
- People aged between 35 and 50 can deduct up to 350 euros, with an investment of 1,750 euros;
- People over 50 can deduct up to 300 euros, with an investment of 1,500 euros.
3. Diversify your investments
When investing, don’t rely exclusively on a single financial instrument. Consider a variety of products, such as life insurance with a savings component, investment funds and PPRs, in order to protect your capital and guarantee a higher annual return.
Although retirement planning is essential, there are challenges to be faced (and to which we should pay close attention):
- Inflation: this can reduce the purchasing power of your savings;
- Longevity: the longer you live, the more capital you will need to maintain your quality of life;
- Uncertainties in the pension system: the sustainability of social security could be a risk factor in the future.
In a world where financial planning is increasingly crucial, it’s important to bear in mind that there are important principles to follow when saving for retirement.
Starting to save as early as possible is one of the most important steps towards ensuring a peaceful retirement. Even with modest amounts, time and the effect of income capitalization will turn this effort into a significant benefit. Besides, it is essential that savings are consistent over time. Whether monthly, quarterly or annually, the important thing is that there is a regular commitment to allocating part of the income to retirement savings.
Another crucial point is to adjust financial investments to the stage of life. As you get older, it’s essential to choose products that combine security and profitability and that suit your needs and objectives. Finally, in order to protect the retirement fund, it is important to avoid using this capital in unexpected situations. For this, creating an emergency fund is essential, ensuring that unforeseen events don’t compromise your plan.
Get ready for your golden years today
Saving for retirement is a responsibility that shouldn’t be put off. So be proactive:
- Start saving today;
- Benefit from the tax advantages of PPRs and other financial products;
- Reinvest your earnings to maximize income capitalization.
By acting now, you are building a more secure future and guaranteeing financial freedom that will allow you to fully enjoy your retirement. Contact us and find out what your next step should be.
