A retirement plan or a pension plan. Do you know which is best for you?
MoraBanking | 10.30.2017 | Jordi Arrufat
Plan de jubilación y plan de pensiones, dos propuestas que aparecen siempre que buscamos opciones para ahorrar de cara al futuro. Los mencionamos a menudo, sin embargo, ¿tenemos
Retirement plans and pensions plans are two of the alternatives that always crop up when we look for options to put something aside for the future. They are often talked about, but is it clear what the differences are between the two?
This will be discussed below, but let’s start with one of the things they have in common: their purpose. The purpose of both retirement plans and pensions plans is to save for retirement. They are products with which we can earmark some of our income on a regular basis to have an income once we reach retirement.
What are the differences?
The first difference is whether or not they can be cashed in before they mature. Although there may be slight differences, a retirement plan allows this option.
In the case of a pension plan, the contributions made over the years plus the interest earned during the term of the plan are paid out at the time of retirement, not before. Although there are some exceptions, such as the case of a serious illness (for more than 12 months), unemployment for over 24 months or the transfer of your tax residency outside of Andorra.
Tax-wise they are also different. A retirement plan does not entitle you to tax breaks. In contrast, pension plans are tax efficient. Specifically in Andorra, you will be able to reduce up to 5000 € the base of taxation of personal income tax (IRPF).
Which best suits each individual?
Financially, the two products are similar. Both in retirement plans and pension plans, the principal is linked to different types of investment, which are subject to more or less risk and, obviously, more or less returns. The most recommendable thing to do is to seek out your personal financial adviser to find the best option according to your profile. There are many choices depending on your requirements and perspectives.
It is also a good idea to have different products in order to diversify how you invest your savings.
In the case of MoraBanc, we have proposals for both types of plan.
- Streamlined pension plans and retirement plans: for gradually saving up, and adapting how often contributions are made and the term of a plan to personal needs.
- Pensions plans and retirement plans with guaranteed income: for enjoying the peace of mind of obtaining a guaranteed annual income, as well as been covered for any unforeseen circumstances such as death or disability.
Both options may be linked to an investment fund, so investors can choose the fund that best suits their profile and get the best risk-return trade-off.
If you are thinking about your retirement options, also take a look at our post Am I too young to prepare for my retirement?, where you are certain to find some useful information.
It is in your hands to start thinking about saving just for when you get older. Therefore, it is up to you whether to top up your Andorran state pension with a private pension plan if you would like to enjoy the same quality of life when you retire.
In the end, it’s all down to deciding on a savings plan that will allow you to enjoy your retirement without changing your lifestyle.
Remember that MoraBanc has the two products: pension plans and retirement plans, adapted to your requirements and extremely flexible.
You can also ask about the range of pension plans suitable for your investor profile at your MoraBanc branch or by calling us on +376 884 884.
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