Stocks, a financial plan and no risk: how to save for old age
Talking about retirement often seems like a distant echo from grandmothers on the bench. It is worth taking care of your old age at a young age. Spoke with the financial consultant of the consulting group “Personal Capital” Roman Bobrov on how best to do it.
According to the Accounts Chamber, the average Russian pensioner receives an average of 16,789 rubles each month.
You’re probably used to grabbing a coffee on your way to work, or hailing a cab home after a long day at work, or just buying something you like. It seems that you spend more per month on such pleasant little things than a pensioner spends on all his needs combined, from utilities to medicines.
It takes many years for an older adult to live on such an allowance. Even with the pension age increase, when men stop working at 65, and women at 60, the life expectancy remains at an average of 73 years. It turns out that about ten years of life will have to live on less than 30 thousand rubles a month.
In different countries, pensions are accumulated differently: in most cases, both the employee and the employer contribute a fixed percentage to the Pension Fund, there are also systems of voluntary pension insurance.
In Russian reality, the pension system looks sad, but if you are under 60, there is still time to fix everything. The main thing is your desire.
When is it not too late?
Retirement income can be projected now.
For example, we want to receive 30 thousand rubles a month passive income in the future. We will take the current interest rate of 7% – now, the federal loan bonds give such a yield. We take 30 thousand rubles, multiplied by 12 months, because we want to get this money throughout the year and divide it by the rate of income. It turns out that to get 30 thousand rubles, you need to invest 5.1 million rubles.
However, we need to keep in mind inflation. Today, the official inflation rate is about 6.5%. But in 10 years, taking it into account, we need capital in the amount not of 5 million rubles, but twice as much. This will allow us to have an income equal to the purchasing power of current money, 30 thousand rubles a month.
A personal financial plan will help to move in the right direction. Clearly defined goals, deadlines, and a sequence of actions will help you clearly understand what and when you need to do and what results can be expected.
Start saving at the age when you start earning money on your own. At the start, it may be small amounts: 5-10% of your income.
How can I save?
Once you’ve determined your goals and timeframe, you can start choosing a strategy. Bank deposits are not suitable for these needs – this conservative method works in the short term. To get an income above inflation, you need to invest.
You can invest in different ways, such as investing in real estate, stocks, or other assets that will not lose value. You can start with a minimum amount, but in the long term, the capital will increase, including regular additions, and eventually generate a passive income – the same pension that you will provide for yourself.
So, where do you start?
To begin with, close all debts and create a “safety cushion” – a cash reserve for the unexpected loss of income. The minimum budget should be equal to the number of your expenses for three to six months. If you have a consumer loan with a reasonably high-interest rate, it is better to close it first and then start investing. But it’s different with a mortgage: you can start saving while you’re at it, so you don’t waste time.
The next step is to create your own “retirement portfolio” of the capital that will bring you passive income in the future. This can include real estate, gold, and currency savings: you need to figure out how much money you will keep in different assets. Diversification (investing in other areas) can help reduce risk. We will tell you about how to compose a portfolio correctly in the following materials.
The most critical advice for preserving capital for passive income – do not to touch that capital for many years. This is what a financial reserve – a “safety cushion” is for. The longer the invested money lies untouched, the more interest it will bring. Growth tactics are also simple: regular monthly replenishments of this account will lead to the desired result even for small amounts in the long term.
What are the risks?
One of the first-time investors’ mistakes is trying to chase big profits and high returns without taking risks into account. Most people are better off with a passive strategy: build a balanced investment portfolio and add to it regularly. Most investors have many questions at this stage. To avoid mistakes, consult a financial advisor.
Another risk is putting off the start of investing. Most people tend to put this issue off, whereas their future standard of living directly depends on it.
In addition, unfortunately, there are still risks of falling into the hands of scammers. Beware of “quick money” – for example, companies that promise great interest. The novice investor is better to look at the investment funds – they provide a good return on investment without the risk of losing capital.
So, how to start saving for old age.
Make a personal financial plan: set goals, deadlines, and amounts, calculate how realistic it is.
Create a “safety cushion” and rid yourself of high-interest debt.
Start investing. You can start by opening an individual investment account (IIA).
Make regular contributions to the account, preferably every month. The amount of replenishment should be at least 5-10 percent of your income.
Make an investment portfolio with an allocation of assets based on expected return and risk – in bonds, stocks, real estate, and others.
And most importantly: Have discipline and invest regularly. This is the only way to build capital that will grow year after year.
