General rules and individual offers for a public sector worker, a middle-class representative and a well-off person
The state pension system is not able to ensure the acceptable quality of life to those who work and earn today. Now the ratio of replacement of the lost income by pension payments is about 32%. But this is general statistics, and in reality, according to the RPF, the average annual insurance old-age pension in 2016 was 13,132 rubles. The situation will get worse with years: the amount of insurance pension will drop against the salary and the cost of living.
The obvious conclusion that follows from this is to take care of your welfare yourself. And to think of savings and investments as soon as possible, because the more time, the more opportunities. “Remember, if you start to save for your pension at the age of 30-35 years, you will have a great advantage over those who starts to think of it much later, for example, 40-45 years. Time! Having 25-30 years, you make your long-time investments in the stock market practically risk-free”, says the international financial consultant of FCP (Financial Management) Ltd Isaak Becker.
There are three important rules of pension savings, says Vadim Loginov, Strategic Development Director of MC Alfa-Capital. The most important thing is to make regular contributions for the future pension (i.e. not from time to time, but constantly). “The second most important thing is the preservation of what has been accumulated, therefore, investment tools for pension savings should be maximally conservative and diversified. Finally, the third factor is the search for additional return on investments, which would allow to overcome inflation”, he comments.
Success depends on how much the person saves on a monthly basis not in absolute terms (several thousand or tens of thousands rubles), but what share of his or her revenues and expenses it is, believes the Director Gerenal of Markswebb consulting agency Alexey Skobelev. “If a person earns 100,000 rubles, of which he or she spends 90,000 and saves only 10,000, one year of retirement with the same expenses will require about 9 years of saving. To ensure that the quality of life now and at retirement was more or less comparable, to save 10% is too little, however, it is a good start to discipline oneself and develop the habit to save”, he says.
The next question is what to do with these savings, he speculates: "Zero option is when money is kept, let’s say, under the mattress, and they are consumed by inflation. The basic option is to put the money on a deposit that simply saves it, as deposit rates roughly compensate for inflation. An advanced option is to do something more or less risky with the money that may increase the amount”.
The amount of regular contributions to the future pension depends on one’s income. In addition, for people with different levels of prosperity, different investment options will be more beneficial. Forbes asked the experts to suggest three options how a 35-year-old man should save for retirement. The scenarios were made depending on the level of prosperity of this conscious person - a public sector employee, the middle class and a person who earns above the average.
Vadim Loginov, Strategic Development Director of MC Alfa-Capital: “Let’s take the average salary of 30,000 rubles. It is surprising, but the lower the salary, the higher the saving rate in terms of achieving a result should be. Otherwise, in absolute terms, the obtained savings will be scanty. For our example, such a rate can be averaged 10%. That is, the monthly contribution will be 3000 rubles. For the given 25 years, the contributions will amount to 900,000 rubles. It is optimal to save the amounts on a deposit in a reliable bank. Moreover, it is better to save 50% in rubles and 50% in foreign currency in order to divide the currency risk. It is now difficult to predict interest and exchange rates for 25 years ahead. But the income replacement ratio will be about the same 10%. This will not ensure a high standard of living, but will be a good addition to the state pension”.
Yevgeny Yakushev, Executive Director of NPF Safmar: "A person who has small amounts to invest and high requirements to risk-free assets can choose the simplest solution - a bank deposit. You can gradually save small amounts - as previously people deposited on a savings account. By a certain time, there will be a certain amount saved. It cannot be called pension savings, but it will serve as a "safety bag" that will allow the person to survive difficult times in financial terms, including to obtain a certain amount by the retirement age”.
Isaac Becker, international financial consultant of FCP (Financial Management) Ltd: “I would not advise those people to bind themselves with saving schemes. Do not jump at the bait of the “total economy”. You can stay with it for the whole life. If you have any spare money, you’d better spend it for better food and fitness clubs. This is your best pension savings in these circumstances. As your real fight for a decent pension at this stage is the strategic planning of your career. In other words, a search for opportunities for more sizeable income: promotion, change of work, your own business”.
Vadim Loginov, Strategic Development Director of MC Alfa-Capital: “Here, the salaries are six-digit. And pension contributions can be five-digit. The choice of instruments for savings is also wider. In addition to deposits, one can choose a pension insurance policy, a scheme in a non-state pension fund (NPF) or open an individual investment account (IIA). For the all three instruments you will have an incentive in the form of the annual return of the personal income tax. For the insurance policy and contributions to the NPF – in the amount of 13% of 120,000 rubles, i.e. 15,600 rubles of return. For the IIA – up to 400,000 rubles on an annual basis, i.e. 52,000 rubles annually. In other words, if you can afford deducting more than 10,000 rubles for your future pension monthly, the IIA is the best choice. If you choose the maximum benefit and make pension savings of 400,000 rubles a year, then by the age of 60, our exemplary person will accumulate 10 million rubles by contributions only. With successful investments, the amount can be significantly increased. But even if take into account the inflation rate, from the saving amount the one can arrange a pension in the form of a rent or annuity, which can significantly exceed the state pension”.
Yevgeny Yakushev, Executive Director of NPF Safmar: “There are a number of active investment strategies. There are mutual investment funds, individual investment accounts. If a person is financially competent, they can make a portfolio comprising of various instruments. The main idea is to split the existing budget for current consumption and for saving a certain amount. There are always people with a big risk appetite, for them investments in stocks and bonds are optimal. But such transactions require time and great opportunities, as well as the knowledge of investment processes. Speaking about the middle class, that is, those who can save 10-20% of their monthly income, they can be advised to use the services of NPFs that will gradually increase their savings, protecting them from inflation. In order to make more money, it is necessary to divide the savings: to invest a portion in the NPF to individual pension accounts and a porting in more risky instruments”.
Isaac Becker, international financial consultant of FCP (Financial Management) Ltd: “Do not make your life more complicated. Just look around. What do you and your friends use every day? For example, iPhone or IPad from Apple, Google, Facebook, etc. They are not only great gadgets and services, they are also money that you can earn. So, only for the past 12 months the shares of these companies grew by 32%, 18% and 25%, respectively (as of the end of March 2017)”.
Vadim Loginov, Strategic Development Director of MC Alfa-Capital: “A person who has earned the conditional "million dollars" may not set the goal of saving a pension only. His objectives are to maintain and develop the sources of the current income. That is, to preserve the capital and to make it work. But the most important thing is not to “put all eggs in one basket”. It is desirable to have a balanced and diversified portfolio of investments, which can have direct business investments, real estate, portfolio investments in securities, which are desirable to diversify by currencies, countries, and industries. The share of securities in the capital may and should exceed 5%. All this will allow you to have a source of passive income in your old age”.
Yevgeny Yakushev, Executive Director of NPF Safmar: “People with a lot of capital make direct investments: they open their business, buy a ready-made business, invest in start-ups. Entrepreneurs prefer to invest rather in their own business than in third-party instruments”.
Isaak Becker, international financial consultant of FCP (Financial Management) Ltd: "For wealthy people, there are many opportunities to arrange their own family pension fund: deposits, precious metals, bonds, shares, various investment funds. However, it is important to have a single plan so that all elements of your investment portfolio are integral and aimed at the solution of the task. Many people neglect this and often get into difficult situations. Here is one example. The owner of a Russian food company has to retire for health reasons. He is not a poor man and has always believed that he does not need any special preparations for the pension. It happened so that he maintains, besides himself and his wife, two families of his daughters. When it came to the "pension", it turned out that there was nobody in the family to transfer the company and now it is possible to sell it just for "peanuts" (the owner's words). A large amount was spent in order to get a residence permit in Andorra for the whole family, which they have never used. They have a big house in Barcelona that is used two months a year and requires a lot of money. It has turned out that our entrepreneur does not have real funds or assets that could bring long-term income and maintain the whole family. It is clear that for any public sector worker this would be an excellent situation, but this family, that is accustomed to a certain level of prosperity, I'm afraid, will have to begin to deny themselves in many things. If he does nothing now, it is not excluded that, say, in 5-7 years, everything that has been earned will be spent “on food” and the prosperous old age will not come true”.
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