Retirement should be an enjoyable stage in your life, or a least, that is what you hope. When retirement comes along, a person should live, on average, between twenty and thirty more years. During this period, your financial requirements do not always decrease. We estimate that you will need between 70% and 80% of your last working paycheck to maintain the same lifestyle you had before retirement. Thus, in order not to become a financial burden on others, you must count on the necessary funds to confront these expenses. To pull this off, suitable planning must take place since what is saved or spent while working will affect the amount of funds you will count on at retirement, and which will allow you to fully enjoy this long-yearned retirement stage.

Most people usually consider retirement as something very distant and assume that their family or the government will help them during those years. This prevents them from planning their retirement adequately, which in many cases is counter-productive. In this article, we will try to clarify the most important points regarding retirement plans, so that when you finish reading, you will feel better prepared to begin, sooner rather than later, your retirement plan.

A mandatory provisional system was first created to cover the deficit produced by the "non-planners”. How does it work? Active employees contribute a percentage of their annual wages and, when they retire, are eligible to obtain a pension. The contributions are managed through a mutual fund. The pension is basically determined by your salary and years of service. The system is based on the principle that active workers will always be able to support pensioners with a percentage of their income.

In this system, participants make contributions to investment fund accounts administered by professional Pension Fund Managers. The investments, under administration and constant government regulation, are invested in diverse financial instruments. The individual account encourages greater control on the part of the participant and funds the annual retirement program. The balance of the individual account is made up of contributions, plus the yield obtained by the investment fund, after operating expenses and commissions. The participation in the system is, generally, voluntary, and you have the option to continue simultaneously with the government-sponsored public system.

Other planning options exist to meet your retirement needs. Many companies offer employee-sponsored retirement plans, in which they themselves may match a portion of the employee’s contributions, and where the employees can be more hands-on in how their money is invested. The greater the years of service in the company, the greater the benefits the employees will receive from the retirement plan. Another option is to form individual retirement accounts. In this case, part of the income is deposited, with a maximum limit, in a financial organization, and you can make the investment decisions. In both cases, it is possible to defer taxes on this income until the moment in which these funds are actually withdrawn.

Planning your retirement must begin with your first paycheck. Your plan must consider inflation, financial needs at retirement, number of years until retirement, future investments and growth rate on investments. Diverse plans exist, individual and collective, as well as under public or private administration. The more in line the retirement plan is with the government’s requirements, the better. The ideal is to be able to invest 10% of your income. Therefore, if a person can count on a good pension and has profitable investments, they will be able to retire whenever they wish.