How to save for your pension…

If you live in Finland and work, you will end up paying 5% from your salary towards your statutory pension, and your employer(s) will be paying around 20% on top of your gross salary to the same pension scheme.

If you work for around 40 years, non-stop you will receive something near to 40% to 50% of your last salary, assuming it goes up gradually with inflation.

If you have bought a house or an apartment then you should have repaid your housing loan by the time of your retirement at 65 years or 67 years.

Together the value of the home and your pension should be just enough for the last 20 or 30 years,

  1. assuming that you have not divorced,
  2. assuming that you are reasonably healthy and happy,
  3. assuming hat you have not guaranteed another person’s loan which he cannot repay, and finally,
  4. assuming that you have worked all the time without any long periods of unemployment…

… the above assumptions are tough nuts – some 50% of all marriages end up in divorce, and probably 10% to 15% of the working population will be unemployed for longer periods, and many people will be self employed on very low salaries or working with zero hour contracts in the gig economy. You also must be careful about working abroad – you pension may not accrue at all if you are not careful about your work contract.

Thus it is useful to save – and putting aside some 5% of you salary into a portfolio of shares over your working life is smart…

So if your joint salary is €45 000 a year then it should be possible to save around €2300 a year – that sounds small but you will get an extra 25% to 30% of your last salary when you retire assuming that you dies at the age of 90 years. Living a little linger will reduce the amount left over but who cares when you are that old!

Buying at least 20 shares over time, in the cheapest possible way, and and holding them without buying and  selling all the time is a great way to spend a few hours every 3 to 6 months.

It does not matter too much what you buy because nobody can forecast what will happen one year from now and certainly not 20 or 40 years from now. Do not bother asking any bank or security dealer – they know no more than you…

Just make sure that they are well diversified and traded on the big stock exchanges – do not try to buy just banks and forest companies. Try to buy a collection of very different companies and who you have bought them check that they are not going down the drain once a year!

Don’t bother with bond at the moment because they give you no protection against inflation and interest rates are so, so low…

Keep enough money for a few months protection just in case you need cash – you never no what is lurking around the corner…

… and perhaps you are wondering why the statutory pension system only gives you a relatively small pension even though the monthly payments are 5 times bigger? There are 2 reasons for this:

  1. These month pension payments paid by you and your employer are needed to pay the pensions of today’s pensioners – they take about 30% to 40% of these payments.
  2. The pension insurance companies are expensive even though they claim the opposite. They employ a large group of manager who big salaries and bonuses, they have expensive organisations, and they are rather too small to be cost efficient in the international markets. They also have too much invested in real estate and in bonds and loans.

Saving is fun and can be quite enjoyable but it must be admitted that you can be depressed when you see CEO’s getting huge pensions when they retire at 60 and then move to Portugal where they stop paying their taxes to Finland like the rest of us! Taxes on pensions is quite high and if you receive around half of you last salary the drop in you standard of living can also be depressing…

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