Retirement is a stage of life that many view with some suspicion because of its financial implications. In particular, because it generates uncertainty. For this reason, there are many formulas that try to alleviate this concern, such as retirement insurance or pension plans in their different formats. All of them seek to guarantee a peaceful retirement, although some obtain better results. For this reason, it is advisable to know them well and take out those that best fit each profile.
What is retirement insurance?
Broadly speaking, retirement insurance (also known as Plan de Previsión Asegurados) is a type of life savings insurance and seeks to protect us in the event of illness or disability, including retirement itself, in such a way that a pool of money is generated with which we can later have a more peaceful retirement or this amount is bequeathed to family members in the event of death.
How does retirement insurance work?
The operation of a retirement insurance policy is similar to that of other savings products, including pension funds. Initially, the policyholder must make monetary contributions for the cushion to be produced: these can be recurring (through what is known as a periodic premium) or sporadic (single premium mode).
Secondly, the entity or firm that receives the money and underwrites the insurance, normally an insurance company, invests the money in very safe products in order to obtain a return (which may or may not be guaranteed).
Finally, upon retirement, the client has access to the funds in the form he/she chooses (periodic payments or lump sum).
Characteristics of a retirement insurance policy
Retirement insurance works in much the same way as other savings products. However, they have a number of important advantages and disadvantages:
Advantages of retirement insurance
- Security: obviously, one of its great advantages is that with this type of product you are assured of a more placid retirement, at least financially. Some specific insurance policies even guarantee you a certain return, so you can know in advance the resources you will have.
- Availability of savings: retirement insurance allows you to recover the money you have invested in it at any time. Of course, as long as the conditions set out in the contract are met, although these may be more lax than in a pension plan, for example.
- Tax advantages: retirement insurance is treated as life insurance for tax purposes, which means that when you receive the money you will only have to pay a surcharge for the yield obtained, and not also for the capital as is the case with pension plans.
Disadvantages of retirement insurance
- More limited profitability: one of the limitations of retirement insurance is that the profitability offered to those who subscribe to it is usually smaller than in the case of other alternatives, such as pension plans. The reason is that they are obliged to invest in products that, although very safe, offer lower returns.
- Costs: some retirement insurance products have high associated costs, especially when measured against the returns they offer.
- No tax deductions: one of the attractions of pension plans is that you can deduct part of the capital from your income tax. This advantage is not available with retirement insurance, although its taxation is more benign.
Alternatives to retirement insurance.
Pension plan
If you have not been overly convinced by the figure of retirement insurance, you have other options. Among them, private pension plans stand out, since they share the main characteristics, but also tend to obtain a higher profitability. The key is that they can invest in certain products that in the long term end up being more profitable, giving the opportunity to achieve higher returns. In addition, depending on the one you choose and the platform where you subscribe the contract, the costs can be much lower.
Of course, as you will see below, some pension plans will not only allow you to obtain higher returns with lower expenses, but you will also find more advantages.
SRI pension plans
SRI pension plans are those that invest according to the principles of socially responsible investment (SRI). This means that social, environmental, ethical or sustainable development criteria are incorporated into the investment decision-making process. Thus, not only purely economic and financial factors will be taken into account in the process of building an investment portfolio, but these “non-economic” factors will also be taken into account.
Index-linked pension plans
Indexed pension plans are a good alternative that has been growing steadily in recent years. Their operation is similar to that of index funds, that is, they track and follow a stock market index obtaining a similar profitability. With them, savers will be able to obtain superior investment returns thanks to the sum of the following factors: the profitability of following a consolidated index, the tax benefits it allows and reduced commissions.
Explore pension plans with inbestMe
A good way to get a closer look at these alternatives to retirement insurance is to use some automated investment platforms available on the market. One of them is inbestMe, which offers its users a wide range of retirement products: pension plans or other assets such as index funds? Well; specifically, the firm has different formats of pension plans that include, for example, pension plans with indexed funds or SRI indexed funds.
In addition, with some highly valued characteristics: firstly, with access for all public, thanks to the fact that its minimum investment is very small (250 euros) and that it has a high expertise in advising and helping all profiles. Secondly, because the results are excellent; in fact, its Variable Income SRI Pension Plan has an annualized return of 7.8%. Finally, it achieves all this while charging very competitive fees and commissions. So, don’t think twice and start planning your retirement with inbestMe.
