Are you already thinking about the day you retire and are you worried about not having a decent pension? You are not the only one. The National Commission of the Retirement Savings System (Consar) estimated in 2019 that if Millennials do not make voluntary contributions from their retirement savings, they will have a pension of 70 pesos per day, which is clearly insufficient.
Therefore, it is important to explore various options to save and invest in a decent pension. Surely you have heard of Personal Retirement Plans. Here we tell you what they consist of, what types there are, costs and how to choose one.
What is the best personal retirement plan?
PPRs are financial instruments designed specifically for saving and investing for retirement purposes. They offer tax benefits and flexibility in terms of contributions.
Choosing the best personal retirement plan in Mexico will depend on several factors, including your financial situation, retirement goals and personal preferences.
According to this video, Actinver and Fintual PPRs are good options.
How is a PPR calculated?
Calculating a Personal Retirement Plan (PPR) involves evaluating your future needs, establishing savings goals, and determining how to achieve those goals. Here I show you the general steps to calculate a PPR:
1. Establish your Retirement Goals:
– Determine the lifestyle you want to lead during retirement. Consider your estimated expenses for housing, food, healthcare, entertainment and travel.
2. Evaluate your Sources of Income:
– Review your current income, such as salary, investments, rents, and other benefits you may have. This will give you an idea of how much income you could count on in retirement.
3. Calculate Savings Time:
– Estimate how many years you have until your retirement. The more time you have to save, the more opportunities you will have to build a stronger retirement fund.
4. Determine the Necessary Savings Rate:
– Calculate how much you need to save to reach your retirement goals. This involves determining how much you can regularly contribute to your PPR.
5. Consider Inflation and Investment Returns:
– Adjust your calculations for inflation, as costs will increase over time. Also consider the estimated return on your investments to see how your savings will grow.
6. Select a Suitable Financial Product:
– Choose a financial instrument that suits your needs. PPR can include life insurance with savings, specific retirement savings accounts, investments in pension funds, among others.
7. Establish Regular Contributions:
– Make periodic contributions according to your financial capacity. Regular contributions can be key to achieving your savings goals.
8. Check and Adjust Regularly:
– Review your plan periodically to ensure it is aligned with your current goals and circumstances. Make adjustments if necessary.
9. Seek Professional Advice:
– Consider consulting a financial advisor or certified planner for specific guidance based on your financial situation and goals.
Remember that the exact calculation of a PPR may vary depending on your individual circumstances, such as your income, expenses, risk tolerance, and retirement expectations. It is essential to maintain a consistent strategy and adapt it as your circumstances change.
How much do I need in my Afore to receive 15 thousand pesos per month?
It depends a lot on your age, how many years you have been working and how much you have saved in your Afore account. To find out how much you must have in your Afore account to receive a pension of 15 thousand pesos per month, you can use the calculator for workers who contribute to the IMSS.
Let’s take, for example, the case of a 30-year-old man, he has a base monthly salary of 18,000 pesos, his current balance in his Afore is 90,000 pesos, he has 400 weeks of contributions to the IMSS and he wants to retire at age 65. According to the IMSS calculator, if you continue contributing with the current base salary and the real yield of your Afore before commissions is 5%, your accumulated balance upon retirement will be 2.3 million pesos, which would give you a monthly pension of 15,346 pesos; That is, 85% of his current salary.
How much does a PPR cost?
The PPRs charge commissions for the administration of the account, they can range from 1.0% to 2.5% of the investment. It is important to ask the advisor how much they charge as a commission; it is preferable to keep the commission as low as possible.
What is better, a PPR or an Afore?
It is not advisable to make voluntary contributions because they invest the money with very low risk, so there are low returns. For example, the Afores that invest with greater risk, that is, for the generation born in 1995 onwards, have generated returns in the last ten years of 6.25%, while in the same period, the average return of the Cetes at 28 days has been 5.89%.
Because of this, it is better to save for your retirement in a PPR because it gives greater decision-making power when investing.
What is the best retirement savings fund for 2023?
According to the World Finance publication, Afore Banorte is the best pension fund in Mexico in 2023.
Which is better PPR in Mexico?
In 2023 there are approximately 47 Personal Retirement Plan (PPR) options to choose from. But, to make the choice easier, keep in mind that there are two types of PPR’s.
The first type is the one offered by insurers; That is, they come with mandatory insurance. So the monthly contributions you make will be divided into two parts: one for the insurance payment, and another for your retirement. It is important to mention that, if you stop paying for this insurance, there is a risk that you will lose part of your PPR money.
This type of PPR is recommended for people who need to feel ‘obliged’ to save for their retirement.
The second type of PPR has more investment flexibility and is offered by more than 40 financial institutions. When you go to one, an investment advisor will ask you some questions to find out your profile and investment preferences and thus offer you a personal retirement plan.
In this link you can consult this SAT list of institutions authorized to offer PPRs.
When you are going to choose a PPR, you have to ask these questions:
- What is the initial amount to open a PPR?
- What types of investments can you offer me?
- What commissions does the investment charge?
- Is there a penalty for stopping contributions?
Where to invest for retirement?
There are various investment options to plan your retirement, and the choice will depend on factors such as your age, risk tolerance, investment horizon and financial objectives. Here are some common options:
READ: What are the consequences of partial withdrawal from your Afore account due to unemployment?
1. Afores (Retirement Fund Administrators):
– In countries like Mexico, Afores are institutions that manage retirement funds. You can choose between different investment options offered by these entities, which include instruments such as stocks, bonds, investment funds, among others.
2. Diversified Investment Funds:
– These funds are made up of a variety of assets, such as stocks, bonds, real estate or other financial instruments. They are an option for those who want to diversify their portfolio without having to manage each asset individually.
3. Stocks and Bonds:
– Investing directly in stocks and bonds can be a strategy, but you must consider market volatility. Stocks have greater long-term return potential, while bonds tend to be less risky but with more moderate returns.
4. Specific Retirement Accounts (IRA, 401(k), etc.):
– Depending on your country, there are special retirement accounts with tax benefits. For example, in the US, IRAs and 401(k)s offer tax advantages and varied investment options.
5. Real estate:
– Investing in property can be an option, either through the direct purchase of real estate or through real estate investment funds (REITs), which invest in commercial properties.
6. Annuities:
– Annuities are contracts with insurance companies that provide you with periodic payments during retirement. They can offer financial stability, but it is important to understand the terms and costs associated.
7. Sustainable or Socially Responsible Investments:
– If you value social responsibility in your investments, there are options that look for companies with ethical or sustainable practices.
8. Professional advice:
– Seeking the guidance of a financial advisor can be essential to designing an investment strategy adapted to your specific needs and objectives.
Remember that diversification is key to reducing risks. There is no single right answer, and it is advisable to find a balance between risk and return that suits your situation and objectives. Additionally, review your investments periodically to ensure they remain aligned with your retirement strategy.
Note: Part of this article was made with the help of ChatGPT and edited by a human
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