You Can Be Secured in Your Retirement If You Do This – Grain by Grain

You only have one more month to take advantage of one of the biggest benefits the government provides for those earning a salary. This benefit is so relevant that it can guarantee a large part of your retirement income. However, most people lose this advantage through lack of planning.

I explain below how you too can benefit. But I emphasize, again, that it is exclusive to those who receive a salary.

I’ve already written explaining why everyone has a pension plan, in addition to a pension plan. Today, I’ll focus on one of the benefits I’ve learned over my years as an investor in this product.

I started working in 1998 and since then I have contributed to a pension plan. In the beginning, the idea was to postpone part of the payment of Income Tax (IR) of 27.5% on salary. At that time, I had no idea how much financial return this postponement could generate for me in the future.

I’ll illustrate the benefit with a simple example. Imagine that you started investing in 2000 in a PGBL pension plan (or FAPI which was very common in the past).

Assume that your annual gross taxable income has been $100,000 for the past 21 years. The PGBL type plan allows you to reduce the taxable base by up to 12%, as long as you invest this proportion. Therefore, you could have invested R$12,000 every year and thus have postponed the payment of the 27.5% IR that you would pay on these R$12,000.

In other words, you failed to pay R$3.3 thousand in income tax annually (=R$12 thousand *27.5%). Normally, this amount would disappear from your account, as you already pay it in IR, if you don’t apply in PGBL. However, if you made a PGBL, you postponed the payment, reduced the rate to be paid and still gained from its income.

The great magic occurs through compound interest, that is, interest on interest.

This amount of R$3.3 thousand, which you invested at the end of 1999, would have turned into R$39,611.80 today, if your PGBL had yielded only 100% of the CDI.

But there are products that pay even more than the CDI. For example, short-term IPCA-referenced pensions. These long-term investments yielded more than 150% of the CDI. So you could have even more.

The table below shows how much the deferred income tax appreciated from the respective year until last Friday. And what is the total amount of income you would have accumulated on a tax that, as I mentioned, would disappear from your account if you didn’t adopt this practice.

That’s right. From an amount that would disappear from your account, you earned income and it multiplied.

Most impressive is the following conclusion.

Before, let’s recall a feature of the PGBL with a regressive tax regime. After ten years, the IR rate to be paid on the amount of R$ 12,000.00 is reduced to 10%, from the previous 27.5%.

Note the final number that represents the sum of all income. The tax you will pay on this gain is less than the sum of all the taxes you would have paid over all the years. It doesn’t matter if you consider that you are going to pay 10% on R$306 thousand or on R$426 thousand. In both cases, the IR on the final amount will be less than the sum of everything you would have paid over the years.

Did you stop to think that a portion of the IR you would pay today could earn you almost half a million in a few years if you plan this application?

But all that I mentioned was only related to the tax advantage. There’s still more.

Note that I did the math considering only the deferred tax portion. However, this represents less than a third of the total amount you put into PGBL.

Therefore, the total amount that would have accumulated over the years would exceed R$1.1 million if the return was just equal to the CDI. Realize that with this amount, your retirement is very well underway.

Now I ask you, twenty years from now, do you want to have your retirement guaranteed? If your answer is yes, don’t miss this opportunity to apply 12% of your salary to PGBL for another year.

I reinforce that the benefit explained is just one of the advantages of applying to a PGBL type pension plan and it is exclusive for those who receive a salary and make the income tax declaration using the complete model.

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