Preparing for retirement and getting a good pension

The time for retirement

The years go by and we continue to work, but retirement is just around the corner. It may seem a long way off, but the truth is that it is always there and must be taken into account. It is essential to make a series of preparations sufficiently in advance so that, when the time comes to stop working, there is enough money left over to be able to live comfortably. In this regard, as lawyers specialising in pensions and retirement, we would like to tell you everything you should bear in mind in this regard.

The key lies in your last 15 years of contributions.

The amount of your retirement pension will be determined, fundamentally, by the last 15 years that you have contributed to the Social Security coffers. The contribution base will be established on the basis of the amount paid in each month, which includes all the items related to common contingencies such as training, unemployment and temporary disability.

In order to determine this amount, the last 15 years that the worker has paid contributions are the most important, although it is true that the whole of the worker's career is taken into account. Thus, if the person concerned were to work continuously and retire at the age of 67, they should know that the amount would be determined by the average contribution base from the age of 52. Here we are going to explain it to you so that you can do it yourself at home.

How is the retirement pension calculated?

It is very simple. If you are of retirement age or if retirement is just around the corner, ask for a copy of your employment history and check the data corresponding to the contribution bases for the last 15 years. Then add them all up and divide by 15 to get the average amount. Once you have it in your possession, you must divide it by 210. But why this figure if 15 years is 180 months? The reason lies in the fact that the administration also counts the extra payments, which would add up to 30 in that time span. This penalises the amount you will receive.

Since the last 15 years will represent 50% of the amount, to continue with the calculation of the retirement pension you should divide the result by two.

That would be the amount that a worker with only 15 years of contributions would receive. However, the law foresees a series of requirements to reach 100%. In fact, to reach that figure, you will need to have contributed for a minimum period of 38 years and 6 months. Therefore, to know the exact amount, it would only be necessary to calculate the percentage of additional time worked and apply it to the result of the operation.

What happens if you want to take early retirement?

The retirement age will reach 67 in 2027. However, the law will continue to provide for the possibility for workers to stop working and receive their pension before that time if they meet certain requirements.

At present, there is the possibility for a worker to take early retirement from the age of 61. However, this is penalised by the administration, especially if they have not contributed for long enough, which is generally within the 38 and a half years that entitle them to 100% of the contribution base. In this respect, for each year in advance, a reduction of 5% of the total is applied.

And what about the self-employed?

The issue of the self-employed is much more difficult because the contribution bases are stipulated by the self-employed through the social security contributions they pay each month. Moreover, although the calculation is done in the same way, the administration imposes certain restrictions such as, for example, that from the age of 49 the worker cannot increase their contribution base.

This, together with the fact that they enjoy less stability than employees, means that the self-employed receive, on average, 430 euros less in pensions than salaried workers. However, once the time has come to stop working, the authorities allow them to remain the owner of the business and to make profits, although these must be declared and taxed, as is obvious.

Is it advisable to take out a pension plan?

After all this, and continuing with the subject of retirement and pensions that we are dealing with, it is essential to talk about the star banking product in this area: pension plans.

A pension plan is designed to provide an additional amount of capital to supplement the amount of the retirement pension and to provide greater peace of mind for the future. In addition, they usually have a very low risk percentage, which is a guarantee. If you have any doubts, the bank where you want to take it out should specify it on a scale of one to six, with one being the lowest risk and six the highest.

In turn, it is normal to resort to those plans that act as fixed-term deposits. This means that the money will earn a pre-determined amount of interest. In addition, they are guaranteed by the Guarantee Fund, which means that, in the event of a liquidity problem, the holder would receive the amount deposited up to a maximum of 100,000 euros.

What should you bear in mind when taking out your pension plan?

Honestly, with all that Spanish society has gone through during the economic crisis that began to hit the country a decade ago, when it comes to taking out a product of this type to supplement your retirement pension, you need to take a series of considerations into account.

Firstly, pay close attention to the reputation of the institution where you are going to take out the contract. In fact, it is a good idea to listen to the opinions of other users, either in person or on the Internet. Also, read every word of the contract you are going to sign and, if you need to, ask someone to advise you and explain anything you do not understand correctly. And if you want to negotiate, do so. In this regard, the fees and conditions may come as a surprise if you don't. It is also important to weigh up all the options available to you.

It is also important that you consider all the options offered by the market and that you always bear in mind that this is a complement to the amount you are going to receive for your retirement.

Conclusions on retirement and pensions

We hope we have been of help to you as you face the moment when you reach retirement age. As you will be able to see, in most cases, due to the way in which the pension is calculated, it is very likely that you will suffer a more or less pronounced loss of purchasing power, which is why having a bank plan that ensures a supplement is a very useful option, especially if you have managed to save a good amount of capital during your career. After all, what you value most at this age is peace of mind and financial security.