Start Planning your Retirement Today
October 13, 2021
It is estimated that only one in three people have planned their retirement. Also, that seven out of ten people will need long-term care services at some point during that period, said Carlos López, Popular’s retirement planning specialist. Therefore, some people have left their health to chance. However, this doesn’t have to be the case.
“In Puerto Rico, typically, it was normal to start planning for retirement a year before retiring. Today, we face a very different reality that requires discipline and shifting to a long-term mindset to prepare properly. For this reason, at Popular we have launched multiple educational efforts over the years to support Puerto Ricans so they can be better informed and make better financial decisions. Our goal is to promote the social and economic well-being of our community”, said Juan Guerrero, Executive Vice President of Financial Services and Insurance at Banco Popular.
We only have one chance to plan our retirement. We must balance that planning with other priorities, commitments, and aspirations like buying a property, our children’s education or traveling the world. “It’s up to us to establish a timely retirement strategy,” López pointed out.
The earlier, the better!
Retirement occurs when we leave the workforce and lose our main source of income: our salary. For example, if a person expects to retire around the age of 65 and life expectancy is 85, we’re talking about 20 years without that money.
Thus, planning for retirement involves thinking about how we replace that income. It also involves considering:
- How to maintain your lifestyle? (but without your salary)
- How to calculate inflation? (since the cost of goods and services will be higher in the future than they currently are)
- How to make sure your needs will be covered? (from leisure activities to medical care)
- How to achieve all this for two decades without running out of assets?
- Defined contribution plans
- Individual retirement accounts (IRA)
- Annuities (which work somewhat like Social Security)
- Life insurance
- You can decide how much to contribute. These contributions are deducted from your tax liability, up to certain limits.
- You don’t pay taxes on the amounts while they are invested in retirement plans. In IRA accounts you could postpone taxation until it’s time to withdraw the money or pay on contributions and not on the money accumulated when you withdraw it if certain requirements are met. Each product has different tax characteristics that should be taken into consideration when making your choice.
- In defined contribution plans and IRAs tied to the stock market, you could benefit from returns (interest or value appreciation) that could be generated by the instruments chosen by you or your financial consultant.