Preparing for retirement has become increasingly necessary. In many countries, public pensions provide only a basic income, which is often insufficient to maintain the desired standard of living. That’s why planning ahead is essential.
The reality is that many people have not saved enough for their retirement. More than half of the population does not save anything for retirement, and the average savings in individual pension plans barely exceed €11,500 per participant – an amount insufficient to cover even one year of the average public pension (around €17,600). Considering that life expectancy continues to rise, and living to 100 years (as discussed in the book The 100-Year Life) will become increasingly common, retirement can last several decades. Without a salary, most retirees will rely heavily on their savings and investments to cover daily living expenses.
This makes it essential to have a strategy that not only protects these assets but also helps them grow efficiently. The right strategy will depend on your personal goals, circumstances, and lifestyle – factors that can change over time, so periodic review is advisable.
These 7 keys will help you better understand your situation and make financial decisions to build a safer and more comfortable retirement.
Note: While most of the content applies to many countries, this article is written primarily from a Spanish perspective. For example, point 3 should be adapted to your country of residence, and relevant links should be checked in point 1.
1. Know your future public pension and calculate the gap with your desired standard of living
The first step is to know how much public pension you may receive. Social Security offers increasingly complete services to check your work history. More interestingly, through the Social Security portal, you can access a pension simulator to check your estimated retirement date (which may change over time) and the approximate pension amount based on your current situation.
Once you know your potential public pension, compare it with the standard of living you wish to maintain in retirement. This does not necessarily have to match your current spending: some usual expenses, such as education for children, transport, or clothing, may decrease. Your lifestyle may also become more relaxed, though it is important to consider that you may want to continue enjoying activities such as traveling or leisure.
For example, if you currently spend €3,500 per month, you may consider that €2,500 would allow you to live well. The difference between your expected public pension and what you need to maintain your desired standard of living (retirement gap) is the amount you need to supplement with private savings and, ideally, investments. Following this example, if you need €2,500 to live comfortably and your public pension is €2,000, you must cover €500, which over 12 months is €6,000.
With current tax rates (around 25%), to receive an additional €6,000 net, you would need at least €7,500 per year. Considering 25 years until retirement (say at age 40) and a 2% inflation rate, these €7,500 would need to be more than double, around €16,575, since at 2% annual inflation your money will be worth less than half. ((1.02)^40 = 2.21 and 7,500 × 2.21 = 16,575 €).
To obtain an annual income of €16,575, you need accumulated capital of approximately €400,000 (exactly €414,007), according to the table above. With an APR of 4%, you can generate this additional income without losing your capital. This is assuming that the public pension also increases at the same rate as inflation. As you can see, this is not always the case. Over the last 20 years, accumulated inflation has been 53%, while pensions have only appreciated by 43%: a deficit of 10%.
If there are further gaps between inflation and pensions in the future, a likely scenario due to the aging of the population, the supplementary needs for our retirement may be even higher. We will be optimistic and not consider this potential additional need.
2. Start as early as possible: time is your ally
In the previous example, we set the exercise as starting at age 40.
But the earlier you start saving, the less effort you’ll need later. For example, if you start saving at age 30 (say, 35 years until retirement), you can accumulate the same amount of capital as if you started at age 45 (say, 20 until retirement) with almost half the monthly effort, thanks to compound interest. Automating your contributions will help you maintain discipline over the long term.
In other words, looking at the table below, and continuing with our example, to accumulate €400,000 starting at age 40 (25 until retirement) with a 6.5% return, I would need €534. On the other hand, if I start early and start at age 30 (35 years accumulating for my retirement), I would need €250 (or 2.1 times less). You can see other amounts/years/returns in the table.
Obviously, these €400,000 will be higher depending on the higher the amounts to be accumulated, that is, the greater the retirement gap. For example, to reach €600,000, the difference between starting at 40 or 30 increases from €375 to €801 (+€426), although the ratio remains the same (doubled). Another way of reading the table is that the earlier you start, the less risk you have to take to achieve the desired capital.
In inbestMe, you can use the Goal Forecaster: once you’ve estimated the gap (let’s say €400,000), you can determine whether you’re on track or not, based on your profile and the year to reach it (in our example, 2025 + 25 = 2050). The simulator will also offer you alternatives to reach your goal, such as a one-time contribution or an increase (or creation) of recurring contributions.
If you can’t save the necessary amount at the start of your plan, don’t despair. Starting early usually gives you some leeway. A good strategy in these cases is to start with the closest possible amount and, during annual plan reviews, gradually increase it until the simulator indicates at least a 65% probability of reaching your goal.
3. Take advantage of available tax incentives
Contributions to individual pension plans allow you to reduce your taxable income for IRPF (personal income tax) up to a limit of €1,500 per year, or up to €10,000 if combined with contributions to occupational plans.
The higher your marginal IRPF rate, the greater the tax savings. For example, if you are taxed at 37%, a contribution of €1,500 could result in a €555 saving on your tax return. In other words, it’s as if you were only putting €945 out of your pocket (€1,500 – €555 = €945).
At inbestMe, we offer individual pension plan portfolios with 11 risk profiles (with the standard or SRI option), ideal because they automatically adjust to your age as the years go by.
It’s most likely that, with the current limits, you will need more than €1,500 per year. In the example we’ve been following, we need to save €3,000 per year (€250 x 12 = €3,000), meaning €1,500 more.
You can complement your strategy with an additional portfolio of indexed investment funds, which allow transfers without taxation and only incur taxes when redeemed with gains. This is a very flexible and tax-efficient option for those who want to save beyond the pension plan limits.
It’s important to remember that investing through pension plans involves a liquidity limitation. The invested capital cannot be freely withdrawn, except at the time of retirement or in exceptional situations such as long-term unemployment, disability, serious illness, or once at least 10 years have passed since the contribution.
Apart from pension plans in Spain, there are other retirement-focused vehicles, which we include in the following table with a summary of the most important characteristics to consider:
4. Invest diversely and efficiently
Saving without investing involves taking on inflation risk. To protect your purchasing power in the long term, it’s advisable to invest in assets that outperform inflation, such as low-cost global index funds. Diversified portfolios of index funds, like those offered by inbestMe, allow you to access thousands of assets easily, with a risk profile adjusted to your needs and fees much lower than traditional products. As we saw earlier, they can be an excellent combination to additionally complement the capital needed for our retirement.
Keeping part of your wealth invested, even after retirement and with a more balanced risk profile, can help you extend the duration of your savings and deal with unforeseen expenses. Since retirement periods are increasingly long, it will likely be necessary to take on slightly more risk than in the past to ensure that your capital continues generating adequate returns.
In the example, we assumed that the retiree reached a sufficient amount to generate a complementary pension “without depleting their capital.” This is partly true, since if we live 25 years, it’s good that, despite withdrawing the income, our capital continues to appreciate at least at the rate of inflation. Considering the new horizons that arise after retirement, it may even be advisable to maintain a somewhat more aggressive profile than in the past, or, as mentioned in point 1, to consider increasing more capital to have more flexibility during retirement.
On the other hand, in our example we are assuming no capital depletion: if we see that reaching the desired capital is impossible, we should not despair; we simply have to accept that we may consume part or all of the capital during retirement. One of the most significant financial challenges for many retirees is that their longevity greatly exceeds what they had anticipated when planning their retirement.
5. Review and optimize old plans
If you have old pension plans in banks or insurance companies, they may be subject to high fees and inefficient strategies. Every bit of capital counts, and it’s important that it’s well optimized.
You can transfer them to indexed plans with much lower fees without paying taxes, like those offered by inbestMe. In addition, consolidating your plans will make tracking and planning easier.
Carefully analyze how your money is invested, since every euro counts. At inbestMe, you can access the comparison service to evaluate your investments.
Additionally, you can use the feature to transfer investment funds or pension plans from other entities to inbestMe (also valid for investment funds).
6. Design a smart withdrawal strategy
lanning how to withdraw your savings can make a big difference in your tax bill. Pension plan withdrawals are taxed as employment income, so it’s advisable to withdraw gradually, avoiding jumps into higher income tax brackets. You can combine these withdrawals with redemptions from investment funds, which are taxed under the savings tax base, along with your public pension, to optimize overall tax impact.
Additionally, if you made contributions before 2007, you could benefit from a 40% reduction on the withdrawal in lump-sum form, provided you meet the established deadlines.
In summary, it is important to minimize or delay the necessary income as much as possible and never withdraw everything at once, both for tax reasons and for the reasons discussed in point 4.
7. Review your plan at least once a year
Your goals, income, and personal situation may change.
Review your retirement plan at least once a year: your gap, your contributions, your investments, and your horizon. As retirement approaches, it may be necessary to shift your portfolio to a more conservative profile, especially if your target is secured, or adjust your savings pace if you are behind.
Additionally, stay informed about possible changes in pension plan contribution limits, tax legislation, or the public pension system that could affect your decisions.
If you are already retired, inheritance matters will start to take importance. But that is a whole other chapter.
Start planning your retirement as early as possible.
Retirement is not a distant destination but a stage that should be planned in advance and with diligence. As we have seen, understanding your future public pension, calculating the gap with your desired standard of living, and making strategic decisions today will make the difference between a fair retirement and a calm, fulfilling one.
At inbestMe, we help you take the next step:
🔹 With tools like our goal forecaster,
🔹 The comparison service that helps you evaluate your investments outside inbestMe,
🔹 With diversified portfolios of pension plans and index funds, highly efficient,
🔹 And a digital, personalized service, with low fees and a professional approach, wherever you are on your path to retirement, helping you maximize returns.
Don’t leave your future to chance. Start planning with us today and take the first step toward a safer, more efficient, and tailored retirement.
Important notice: This article is for general informational purposes and does not constitute personalized financial, tax, or legal advice. Individual situations vary greatly, and laws can change over time (references to regulations are valid as of 2025). Before making important decisions about your investments, withdrawals, or tax planning, consult a qualified financial advisor and tax professional who can analyze your specific case. Your retirement and savings are important enough to seek tailored professional advice. Plan ahead and enjoy your retirement with peace of mind! At inbestMe, we do not provide tax advice, but you can contact us for personalized financial guidance.
