When we talk about saving pensions / saving children, there are usually fears that arise from the uncertainty of the future. We simply do not know what will happen in what direction our life situation changes. And this uncertainty largely determines our relationship with the idea of long-term savings. Now let’s see how we can protect ourselves and our money against uncertainty.
# 1 Reason – Flexible product concept – long-term savings as a solution
It is a legitimate fear that, in vain, I can set aside 50,000 forints per month for my pension, but it is not at all certain that there will be no event (series) in my future that makes the award no longer possible. I think that in such cases the role of flexible product concept will be appreciated, which will allow us to have the contracted monthly fee:
- Reduced fee lb
- Pause Prix
- Raising fees
The essence of the flexible product concept is precisely that we can change our “obligation” while using the options provided in the contract (different in terms of contracts). In this way, for example, it is possible (in the contract under examination) to request a 4 × 6 month pause per year, which has no “adverse side effects” on the contract, simply because we do not pay the monthly fee.
In the same way, we have the opportunity to reduce or even increase the monthly fee for the anniversary (as our life may change in a positive direction). From a security point of view, it is obviously more interesting to lower the initial $ 50,000 per month after x years (or temporarily) to $ 15,000 per month, because it is a “more convenient solution” at that moment compared to our life situation.
Remuneration means that we never want to pay more, but we leave the capital accumulated so far in the contract, do not break it down and switch to the so-called “stand by” mode without any further payment, we only manage the accumulated amount.
# 2 Reason – We pay less for present value
It is a legitimate concern over long-term savings that inflation (the deterioration of the value of money) simply “loosens” our benefits. To compensate for this process, we suggest that we ask for a so-called indexation on our contract, that is, pay annually 3-5% more than last year.
It is logical, because if our money deteriorates by 3-5% from year to year (observing 10-15-20 year horizons), then we have to pay 3-5% more to reach the same value as it was initially we have a goal.
However, remember that everything is true and the opposite is true. In our case, the most important finding is that if we always pay the same amount (nominal value), then our actual expenditure decreases at current value year-on-year to the extent of inflation.
Think about what 10,000 forints mean to you today and 10,000 forints 10 years ago? And what does this amount mean 15 years ago? We can easily see that this amount is getting less and less, we can buy less and less of it! And then why did we think so far that every year we pay the same amount of money to our savings, will our money get more and more? Mystery!
# 3 Reason – Increasing Payment
Optimally (there is no guarantee for this) over the years, as your professional experience increases, your earnings will have to rise as well. I do not want to “cling” to the drastic increase in income in Hungary in the past 1-2-3 years, the causes of which can be traced back very far and probably the result of an “extraordinary situation”.
Nevertheless, I think that in some way everyone’s income (at least in nominal terms) will increase. The other question is what form of price increases are related to this rise… We are looking for more than bread costs? ”Economists always ask.
It is important that these are average earnings. Thus, in parallels with the example (50,000 forints / month), we are clearly not talking about the standard of the average earnings. In the case of those with higher incomes, there is an enormous appreciation of [time spent in work x professional experience], so that representatives of this segment in the labor market can gain higher income.
Regardless of this, in the case of the average income examined in the table, it is worth looking at the example, when in 2003 average Jakab set aside HUF 5,000 (5.9% of his average income) for pension purposes. 13 years later, two important numbers can be determined, if Average Average always consistently set aside $ 5,000 a month (non-indexed, no raised fee):
- It puts aside only 2.7% of its 2016 average income. This is a 3.2% decrease compared to itself.
- Calculated at present value in 2003 (assuming 3% inflation), HUF 5,000 in 2016 amounts to HUF 3,404.
In Hungarian, Jóska averages half of his salary in half as much as his salary in 2016, compared to 2003.
For average Jóska, real savings in 2016 would amount to 10,496 forints per month compared to the initial 5,000 forints. This would amount to HUF 7,147 at present value in 2003 compared to the value of HUF 5,000 in 2003. This is an increase of 42.94%, while salary increases by 219%.