SELF-ASSEMBLED INDIVIDUAL RETIREMENT PLAN- Excerpts of the book "Finance for dad"

How can you assemble your own individual pension plan?

In that part, you will find all the necessary information to create your own investment portfolio. A pension plan, as we mentioned, is nothing else but a long-term investment. Therefore, do the exercise to develop your own financial assets allocation and create the most convenient portfolio. The portion of long-term investment will be your pension plan.

What is more suitable when establishing an individual pension plan: creating it personally or getting a structured plan?

Both alternatives have advantages and disadvantages. Before making a decision, it is important to go through them. There are different commitments; in the first case, you are free to contribute and withdraw your money whenever you want to. In the second case, you are committed to contributing a fixed amount during a specific number of years and you can’t have this money back until the due date has been met. In general terms, we can say that the first system is good for a highly disciplined person from a financial point of view, and the second one, for those who are not so much. Obviously, the second alternative is more expensive than the first one, but if you think that you don’t have control and discipline to manage your own portfolio, it is better if you buy a structured plan; otherwise when retiring, you will see yourself without enough resources to survive, which is not a good prospect.

Can you have a pension plan abroad?

From the standpoint of the recipient countries, there is no problem. You can invest anywhere in the world. It is even possible to invest in real estate in the moon. Limits can be found in your own country. So, the first thing you should do is to investigate your local legislation in relation to the exchanging currency regulations. Once you have determined that there are no local constraints to invest abroad, the next step, as usual, is to get information about the subject. The Internet is a great tool. You can find a lot of information on the possibilities of individual investments. When you feel prepared, we suggest that you find out local brokers that could be representatives or have their own connections with foreign investments. At this point you’ll be ready to discuss with their representatives.

Is it prudent to get a pension plan abroad?

It depends on many factors: your situation, economic expectations in your country, economic expectations in the country you want to invest in, the company through which you want to invest, taxes, financial instruments, etc. There isn’t a general answer for this question. It is better to talk with an investment advisor.

How much do you need to save each year to retire at the age of 65 with $1,000,000 if you start contributing during the third stage?

If you didn’t start your retirement plan during the previous stage, try to do it as soon as possible during this period. Don’t put it off any longer, stop thinking about it. The required amount will be higher as time goes by. There will be a point in which it will be practically impossible to achieve your objective. In the chart below, you will see the required annual savings, according to the year you start contributing to your plan. For the purpose of this exercise, let’s imagine that you keep your objective: retiring at the age of 65 with a capital of $1,000,000. Let’s also say that the average yield that your contributions will get is 10% annually throughout the period.

As you can see in the previous chart, starting a retirement fund plan gets harder and harder as time goes by. So, if you start at the age of 31, your annual contribution will be $3,703 a year, but if you put it off until the age of 45, it will be $15,872.