Calculate how much you need to invest to have an extra income in retirement

Otoniel Cardoso dos Santos, 48, has never contributed to the INSS (National Social Security Institute). The self-employed worker lived abroad until 2010, when he returned to Brazil. He continued working as a tire sales representative, and when he turned 40, he began to worry about retirement.

When looking for life insurance, he got to know private pension plans: “After researching and finding an interesting plan, they showed me some investments that would generate income in the future. I started with something small that I could afford and I invested more over the years.”

For the future, Santos does not want to contribute to the INSS, as he does not see it as guaranteed in a decade. He believes that Social Security will not last until then — a hypothesis with which investment consultant and professor at UFRJ (Federal University of Rio de Janeiro) Carlos Heitor Campani disagrees.

“Social security must complement INSS income to provide a more dignified life, and not just subsistence.”

With periodic contributions, which favor long-term planning, private pension allows the accumulation of amounts that will be invested by the plan manager. Then comes the usufruct phase, in which the investor starts to receive income from his assets.

It is possible to request a redemption, but normally there is a predetermined period in the contract in which the money can only be withdrawn upon payment of a fee, called a loading fee on exit.

There may also be a minimum time between requesting redemptions without paying fees.

Campani recommends starting these investments as soon as possible, so that the policyholder can make smaller contributions and take advantage of the high interest rates.

“It’s like a mountain 3,000 meters high. If you start far from the peak, the climb is easy. Now, if you start close, the climb is steep and you’ll get tired. Likewise, if you start saving as soon as you enter the market of work, the percentage to reach the same income drops drastically.”

According to calculations endorsed by Campani with the support of the BrasilPrev team of specialists, monthly contributions of R$156 from the age of 20 can result in income of R$1,000 per month at the age of 65. The figure is even higher for women due to lower risk outlook.

However, starting at age 30, the value to have the same amount would be higher, R$ 238. The difference increases when investments begin at age 40, 50 or 55, with the need to invest greater amounts (R$ 1,257) than than the resulting monthly income in the future.

According to Campani, the ideal is for people to start investing from 10% to 20% of their income. The specialist simulated the amount that would be accumulated for investors starting to save R$ 200 per month at different ages. As women have a longer life expectancy, the monthly income would be lower.

When choosing a pension plan, it is necessary to consult the amount of fees charged by the institution.

The management fee is the cost of managing the fund, charged on the total amount in the pension plan; the top-up fee, which does not exist in some plans, is applied on the contribution, that is, on each remittance invested in the plan; and the exit fee applies if the money is withdrawn before the grace period, planned in the contract.

Such fees and deadlines can be checked in the contract, but Campani says that, currently, in most plans the entry fee is zero and the exit fee is valid for a few years. The professor recommends analyzing the rule for converting social security assets into income.

“If one table predicts that I will die at 79 and the other at 85, but everything else is the same, the plan that predicts that I will die at 79 is better, because the account will predict less time to live and more money that I will receive monthly.”

In addition, Campani indicates checking the percentage of profitability that after retirement will be passed on to the person.

Daniela Mir, financial planner at Planejar (Brazilian Association of Financial Planning), says that investing in private pensions or in other long-term investment should be everyone’s habit, but that it is even more important for self-employed workers and legal entities.

“There will be no possibility of any increase in income from the INSS, not even other income from possible benefits that CLT workers receive when leaving companies, such as the guarantee fund.”

The planner says that most pensions offer several forms of redemption: total, monthly income for a certain period, temporary income and lifelong income. In the latter, the amount of income that will be received is defined according to life expectancy.

There are different types of lifetime income. In the simple one, there is payment until the death of the participant.

As for lifelong income with a guaranteed minimum term, it is foreseen that, in the event of death before this minimum period, the amount continues to be paid to the successors of the beneficiaries until the contracted date.

The specialist says that there is also a reversible lifetime income for the indicated beneficiary or spouse with reversibility for minors, in which the monthly amount decreases depending on whether you choose to receive it for a period after death or for a guaranteed period.

“It’s a salary like any other, and there is a rule that this value is updated every 12 months by a predetermined index in the inflation contract”, explains Campani.

At first, investing in private pension may not be so simple. Mir explains: “Despite the availability of this type of investment in all banks and brokerages, it is necessary to study and understand which products make sense for each person or family.”

Furthermore, for Campani, the biggest disadvantage of social security is its misuse.

“If you put your money in the pension plan and decide to take it out a year later, you will inevitably pay an exit fee, a lot of fees, your tax payable will be higher, so the biggest disadvantage is that you use private pension in the wrong way .”