The pension conversation is a hot topic at the moment. In simple terms, it refers to ensuring that one manages to maintain one’s current lifestyle after retirement age. If one wants to travel and make more purchases in retirement, one will have to save more.
Some believe that Government’s pension pot should be enough to sustain us as we get older. However, others argue that it is not possible to sustain our ageing population unless every individual takes responsibility for saving for his retirement.
We’re living in a time which is impacted by the post-war baby boom and an increase in life expectancy. Concurrently, there is a drop in fertility rate, and consequently, the ratio of working population per pensioner is decreasing – so much so that in Malta there are more people aged over 60 than there are people aged 19 and younger.
How far will the state pension take you?
One must remember that the pensionable income in Malta is capped, so the maximum two-thirds pension in 2015 was of EUR11,895 per annum, or EUR229 per week. However one would only be entitled to the maximum pensionable income if one’s salary is equal to or less than EUR17,933 p.a.
Consequently, in order to maintain one’s standard of living after retirement, one would need to save for the shortfall between the forecasted state pension and one’s current salary.
It all starts with a sound plan
Building savings requires careful planning, which includes assessing one’s current assets, the number of years left until retirement and how much one will be able to save during the pre-retirement years.
When shoud you start saving?
It is natural to feel that retirement is still far away to worry about. One might also feel that they cannot afford to start saving for retirement now, when there are so many other things one has to pay for every day.
Although retirement might seem a long time away, the earlier you start saving the less it will cost to build up the amount of money one would need. That is because the longer one’s money is invested the more chance it will have to grow. Every year that you delay saving for retirement means you will have less money at retirement or that you would have to work longer before affording to retire.
It is important to determine how much you will need to save.
First, you should consider the possible sources of income you would have during retirement.
The next consideration is the type of saving vehicle you use for your personal savings – this will affect your required annual savings. The amount varies depending on whether your means of savings are in pre-tax, after-tax, tax-free or tax-deferred accounts or a combination thereof.
In my next blog, I'll be discussing Private Pension plans and other options you may consider for saving for your retirement.
Bank of Valletta p.l.c. is a public limited company licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta). Bank of Valletta p.l.c. is an enrolled tied insurance intermediary of MSV Life p.l.c. MSV Life is authorised by the Malta Financial Services Authority to carry on long term business of insurance under the Insurance Business Act 1998. Bank of Valletta p.l.c. is authorised to act as a trustee by the Malta Financial Services Authority.