The latest actuarial study commissioned by the Andorran Social Security Fund (CASS), and based on 2020 data, put the amount committed to future pension payments at EUR 7 billion. The current retirement reserve fund closed the month of March with just EUR 1.725 billion. A large part of this difference, EUR 5.275 billion, has been caused by the recognition of public pensions without taking into account the increase in life expectancy over the years. This is evidence of the need for reform of the pension system to ensure commitments can be met.
Elisabeth Warren, a renowned insolvency expert at Harvard University and a US senator, has spent two decades researching financial issues. In collaboration with her daughter Amelia, she published All Your Worth: The Ultimate Lifetime Money Plan in 2006. In this book, Warren introduces us to the 50/30/20 theory, an approach to personal finance management. According to Warren, 50% of our monthly income should be set aside to cover basic needs; 30% should be earmarked for expenses which, while not strictly necessary, would significantly improve our quality of life; and the remaining 20% should go towards financial goals like savings.
The principle of diversification in investments challenges us to choose different options, rather than just one, in order to minimise our risks. In terms of retirement, we can diversify based on the three-pillar principle, which establishes the three sources of financing of our retirement. The first pillar is social security, the second is the occupational retirement provision and the third is the private retirement provision. It is in this last option that we can all be more proactive in order to maintain our purchasing power in retirement: recurrent savings over time.
We can generate these savings by following different criteria. Firstly, by applying a criterion of responsibility that ensures economic development that meets the needs of the present. Secondly, with a balanced approach that ensures stability between economic growth, care for the environment and social welfare. If we choose these approaches, we will be working on the basis of sustainability criteria.
Market volatility is another factor to take into account when we decide to make the nest egg we are generating profitable. A proper understanding of what we are offered will allow us to choose the product that best suits our needs. Choosing the product that fits our risk profile will be key to reducing our worries. Some current products guarantee the returns on offer and provide additional peace of mind in an environment of fluctuating financial markets.
Beyond the public provision, each of us needs to be proactive in ensuring our financial independence in the future. It is important to plan to invest, on a recurring basis over time, part of our current income in order to have it at our disposal later on. We must choose how we want to do this, trying to make these savings profitable in a responsible way, looking at what products the market offers us, and adjusting to our risk profile. All of this requires a thorough analysis that allows us to select the best option according to our reality and our values. In this way, we can be sure that we made the right choice when we took out the product.
Diari d’Andorra 09.05.2024