Throughout your financial life, as you achieve your goals, your long-term objectives merge into only one: accumulate funds for your retirement. It will occur at some point during this stage.
What should your investment portfolio be like during the fourth stage?
You should be becoming an investment expert. You’ve known how to take advantage of your advisor’s knowledge not only to get help managing your portfolio, but also to improve your knowledge and complete your financial education. At the beginning of this stage, theoretically, you’ll be 20 years away from your retirement. A typical portfolio will have a high concentration in equities, looking for the highest possible yield. However, your portfolio doesn’t have to follow such performance. You should even it up according to your asset allocation.
At what age can you retire in the mandatory pension systems?
It depends on the legislations of your country and other factors. The first one is gender. There’s usually a five-year difference that favors women. Thus, for example, if a man can retire at the age of 60, a woman can do it at 55. Why is it like this if they live longer? I don’t know! It might have been a woman who wrote the first pension law and afterwards they have been so skillful that they have kept this through the years. Another factor is the system to which you are affiliated. As we explained before, some countries have more than one alternative, while in others there is only one. In the individual capitalization system, you can ask for an early pension at any age if you have enough funds to support a minimum pension. In the traditional system, it will depend both on your age and the number of accumulated weeks. In most countries they vary between 60 to 70 years and 1.000 to 1.500 weeks.
How can you improve your pension in the individual capitalization system?
Considering that you still have 10 or 20 years left to retire, you could significantly improve the amount of your pension by contributing more to it or with special contributions. However, if the laws do not allow it, then you can open a parallel volunteer pension account. You can do this in the same AFP where you are contributing the mandatory part.
How can you improve your pension in the traditional
pension systems?
In this system, the amount of your pension usually depends on two factors: the level of your monthly contributions and the time you’ve been contributing. The total of your pension is normally based, in most systems, on the average of the contribution you have made in the previous years of your retirement. So, you can increase the level of your pension if, during these years, you raise the level of contribution since this improves your average. However, you should keep in mind that there are exceptions to the rule. In some systems, pensions consist of one single payment for everyone, regardless the time and the level of your contributions. In this case, the best would be to try to contribute the required amount by law and keep the rest for your individual pension fund. It is important that you understand how your system works, before doing something. If you want to improve your pension, you must do it the right way.
Learning from experience:
A 50-year-old executive, who was affiliated to the traditional system, left his job after 25 years of hard work. He had been contributing to the social security in the highest level of the scale. Therefore, he was supposed to receive the highest pension. According to the law, he could receive his pension ten years later, at the age of 60. However, he had heard that if he accumulated more weeks, he could improve his pension. So, he continued contributing but, to save money, he did it at the lowest level of the scale. Unfortunately, he didn’t know that the calculation of the pension was based on the average of his contributions during the last ten years. As a result, when contributing at a lower scale than the scale he had been doing, he was damaging his average and therefore, his pension.
How can you improve your voluntary pension plan?
Although the logical answer is to increase your contributions; there is another important factor: you must take care of your investment/retirement fund. You have to review your portfolio periodically, and make the corresponding adjustment, when necessary. For people who have been putting off the creating of their retirement fund, now it has gotten a little bit more difficult, but not impossible. Fortunately, they are in the stage of higher income, so they can contribute more. If you still haven’t started your retirement plan, that’s because you are not convinced of your importance. Let me try to convince you. To understand this topic better, you should see yourself in the future, when your children are educated, you career has come to an end and, whether you like it or not, you’re getting older. If you have taken care of your health, you should be physically and mentally healthy; you could continue working for many more years, but...
A JOB AFTER 50?
If you opened this chapter hoping that you would find the secret on how to get a job after 50, I must apologize for giving you false hopes. The paragraphs below are addressed mainly to those who are around 50, but also to those who are still far from that age. They must be prepared for the future.
What are the odds of getting a job after 50?
If you are around 50 and unemployed, the chances of being hired are very, very low. After 55? The odds of finding a job are, virtually, nonexistent. Unless one of your children is a successful businessman and he gives you a position in his organization, there won’t be any other job opportunities. Well, you might think that you still have the chance to start your own business. I would like to make my point about this topic. If you have been an entrepreneur during your active life, or if you have had to manage the company you started and developed, I’m sure you can set up a new one. Nevertheless, if you have been an employee of a company that is already structured, no matter if you were the president, director or general manager; I can assure you that the possibilities of you being a successful businessman are very remote. Look around you; see how many people, who have retired, ex-employees that you know have been capable of setting a successful business. Not so many, right? The percentage of success is very low.
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