Self-employed, preparing for retirement

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Enjoying a good retirement is the aspiration of all workers, but the pensions of the self-employed group are still not equal to those of wage earners. If we add that the majority of self-employed people opt for the minimum contribution, adequately preparing for retirement becomes even more essential, if possible.

The average retirement pension of a self-employed worker in April 2017 was €708 per month compared to €1,205 per month for an employee.

Almost €500 difference in the average pension between the self-employed and employees

The approved Law introduces important innovations in terms of contributions, bonuses, and deductible expenses for the self-employed, as well as measures to improve family reconciliation and hiring.

Main innovations introduced by the new Law.

Reducing the excessive fiscal pressure and improving the scarce social protection have been the traditional demands of self-employed workers. Complementary social security is the guaranteed solution to these two problems.

Tips for planning retirement and family protection

1.- How much will I need to earn after my retirement?

We must estimate the income that we will need to be able to maintain the same standard of living as in our active stage, taking into account that life expectancy in Spain is the second highest in the world after Japan and that it is estimated at 83 years on average. Therefore, it is not an exaggeration to estimate the income necessary to cover the 20 years after the moment of our retirement.

The questions we should ask ourselves are:

  • If we will have to pay a mortgage or the rent of our home
  • Whether the children will be emancipated or continue to be financially dependent
  • The insurance premiums that we will have to face, including car, home, Erie Insurance, and, above all, dependency and health insurance (whose premiums tend to increase with age and increase if they are used too much)
  • All current expenses for our livelihood
  • And, finally, that important part that will allow us to enjoy our free time; travel, leisure, etc.

2.- Start saving as soon as possible, dedicating private savings for retirement and complementing family protection at the same time

If we take into account that the Social Security family protection for the self-employed, like the retirement pension, is calculated as a percentage of their contribution base, and that the majority opt for the minimum base, it is easy to see that in case of death or disability, the situation in which the family economy is left is truly worrying.

Consequently, the typical public pensions for orphans, disability, and widowhood for a self-employed person suppose a collapse of family income that leaves their loved ones unprotected. Complementary social security stands as the ideal instrument to cover these uncertainties with a total guarantee.

Having the multiplier effect of the return on our savings, starting to save from our first income, will allow us to consolidate a long-term guaranteed capital with little effort.

3.- Choose the savings/investment/family protection product that best suits our needs.

Here we must have a specialized advisor and study the possibilities according to the following parameters:

-Family payment commitments and coverage need in case of death. Studies, mortgages, business financing debts, the house, etc.

By Master James

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