Opinion – Grain in Grain: How to choose where to apply your private pension?

Most people wrongly select their pension plan. This failure occurs due to the lack of knowledge or confusion of investors about what this product is. I explain below this confusion of investors and how you should choose where to apply your pension.

The main reason investors make mistakes in how to apply their private pension lies in their misunderstanding. Investors attribute private pensions as a product that will generate a pension for them.

Investors confuse private pension with INSS or public pension. In the latter, taxpayers pay a certain amount related to their income and, in the future, they expect to receive an income.

Thus, public pension is related to two factors: the value of your contribution and the current rule for retirement. Yes, the rule can change, as has happened in the recent past. But we are not here to discuss public welfare.

Private pension is different from public pension.

Private pension is simply a vehicle of accumulation. As I have explained in the past, in the vast majority of cases, no one should hire the benefit associated with private pension.

So, private pension is not good for retirement?

There are several benefits of applying for private pension, as I have discussed in the past, but you should not hire your income generation benefit (read here and understand).

The income you will get from your pension will simply be through periodic withdrawals from it during retirement.

This means that what you get in the future depends on three factors: contribution, return and time.

Therefore, the greater the contribution, the return and the time, the greater the accumulated value. The greater the final equity, the more you can redeem, monthly, to enjoy in your retirement.

Private pension is an investment fund, like the ones you eventually already have in your portfolio. In fact, several investment funds distributed in the market can be invested via the open or pension vehicle.

All your financial and real estate assets can be used in your retirement to generate income. Your private pension should not be seen as something separate. It is included in this portfolio.

Therefore, choosing where you should invest your pension is not a separate decision from your total portfolio.

For example, suppose your financial plan dictates that the portfolio is divided into the following investment classes and proportions: 80% fixed income, 10% hedges, and 10% equity. This planning considers, among other factors, the investor’s return objectives and risk restrictions.

You could have pension products distributed across any or all of these investment classes within your portfolio. In fact, despite being able to be in any of these classes, there is one that takes advantage of more than one of the benefits of private pension. I will address this in an upcoming article.

Finally, the choice of specific pension funds follows the same selection criteria as any other fund. The criteria are defined by the 5 Ps, which I have explained in the past: product, performance, people, processes and perspective.

So, if you are in doubt about where to apply, take a step back and first define your financial plan. The selection of where to apply will be the result of this plan and the choice of the best pension funds according to the 5Ps classification.

Four lessons for today:

1 – Private pension is an accumulation vehicle that has tax and inheritance benefits;

2 – You must not contract the income benefit associated with your pension plan at the time of retirement;

3 – The choice of where to invest your pension is associated with your investment portfolio as a whole;

4 – The classification of pension products follows the same criteria for selecting investment funds.

Michael Viriato is an investment advisor and founding partner of Investor’s House

(Follow and like De Grão em Grão on social networks. Instagram.)