Banks confuse people when they say it’s a mistake to close retirement savings early. It may or may not be, as the example demonstrates

Recently, Czech savers have prematurely withdrawn their savings at an above-average rate pension. Because they close the additional ones prematurely retired Rescue or additional insurance. This development is confirmed by data from virtually all major national banks. In one breath, these institutions warn that early termination Rescue already pension is a mistake. However, this is not true. It cannot be categorically stated in this way. On the contrary, it can be a financially prudent decision.

Of course, it depends on why the saver is his retired Rescue it actually ends early. Some do this to cover the higher expenses associated with the payment power and to better cope with the extraordinary current in general inflation. But others are simply looking for an opportunity to better value their funds. So that you don’t have to take excessive risks. And this can be achieved, as the experience of the last fifteen years shows to allowapproximated by the following example.

If you started save money in 35 years of life such that monthly Rescue contributes his 1000 Czech crowns and the employer adds another 500 Czech crownsat age 65, applying a balanced strategy with an assumed interest rate of 3.5 percent per year, he will have approximately 1,085,000 saved Czech crowns. National contribution of which they amount to about 82,600 Czech crowns.

If such a person decides Rescue in half the time originally planned Rescuethat is, after about fifteen years, ending prematurely, Fr national contribution for an amount of about 41,200 crowns. Contributions employers will be in the middle Rescue correspond to about 89,500 Czech crowns. Contributions 179,000 for the participant himself Czech crowns. The valuation will correspond to approximately 79,200 Czech crowns.

Rating A contributions however, the participant will owe the employer in the event of early termination Rescue taxed at fifteen per cent. Then get the full amount back contributionsi.e. 179,000 Czech crownsand an additional 76,100 Czech crowns in the form of taxation contributions employers and 67,320 Czech crowns in the form of taxation revenuesi.e. the taxed valuation.

In total, one person will get less than 322,500 back Czech crowns. If he has to invest this money in such a way as to provide for him product higher than it should be continuing v retired Rescue at its end, it should therefore invest the given amount, 322,500 Czech crownsso that within the next fifteen to allow it had more than 1,085,000 Czech crowns. So it should amount to 322,500 Czech crowns invest, for example, in Actions so that their annual average product during those fifteen to allow it was at least about 8.5%. This appears to be the annual average dollar altogether product principal American of the Standard & Poor’s 500 stock index over the past fifteen years to allowinclusive dividend. So this is not science fiction or extra risk, but a relatively common stock investment, actually one of the most common.

If we were to focus on the annual average product of the aforementioned Standard & Poor’s 500 indicator after conversion to crownsis his average self-assessment, i.e. without accounting dividendfor the period of the last fifteen to allowfrom 12 December 2007 to 12 December 2022, for a total of 8.7% per year. In the statement after accounting for reinvestments dividend enter crowns even an average of 10.9 percent per year.

Sure, if the person in our example ends his prematurely retired Rescueit will save about 180,000 more crowns not being conventional anymore Rescue already pension surrender. So overall, a person can be in early termination Rescue by hundreds of thousands crowns richer without having to make risky investments. Actually, the most common ones will do investment Do Actions. Appreciation of the shares of the last fifteen to allow him for the next fifteen to allow obviously no one guarantees. And the past revenues I am not a guarantee of future ones. But unilaterally claiming that early termination Rescue already pension represents an error, it is simply not true.

Lukáš Kovanda, Ph.D.
Chief Economist, Trinity Bank