How_Money_Works_-_The_Facts_Visually_Explained

(Greg DeLong) #1
Saving and investing for a pension

How it works
Some countries pay retirees a
state pension based on taxpayers’
contributions. However, a state
pension only provides enough
money for a very basic standard
of living, and many countries
encourage people to save money
while they are working to provide
them with additional income for
a more comfortable retirement.

Saving into a private pension is the
most common way of doing this. A
pension is a long-term savings plan
in which the money is invested in
shares, bonds, or other types of
assets with the aim of providing a
return on the money invested. The
more money saved while working,
and the better the investments
perform, the more money there
will be to live on in retirement.

❯❯State pension Pension payout
determined by the taxpayer’s
regular contributions.
❯❯Defined contribution
Pension payout determined
by the amount paid in and the
investment fund’s performance.
❯❯Defined benefit Pension payout
from an employer determined
by final or average salary.
❯❯IRAs Individuals contribute and
pay tax upon withdrawal.

NEED TO KNOW


$1,980
PER YEAR

RENT MORTGAGE
AND CHILDREN

Early investment for
maximum return
The earlier a saver starts saving for a pension,
the better. Firstly, the saver will need to save
less each month to reach their desired sum
for retirement. Secondly, some employers
also contribute to employees’ pension
savings, while some governments offer tax
advantages on pension savings. Thirdly,
investments will have more time to ride out
the ups and downs of the capital markets,
and savers will benefit from more interest
as it accrues over the years.

Saving at 25
25-year-olds may
struggle to save $165
a month but they should
still aim to save a little,
increasing the amount
if earnings increase.

ROUTE TO
RETIREMENT
FUND

A pension is a savings plan or investment designed to
provide a retirement income, based on how much has
been saved and how well the investment performs.

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45 40 35
AGE AT START
OF INVESTMENT
YEARS OF
INVESTMENT
25 30 35
50
20
US_198-199_Saving_and_investing_for_a_pension.indd 198 13/10/2016 16:21

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