Pension plans offer tax advantages that can make a difference compared to other savings products. However, economist and HelpMyCash co-founder Olivia Feldman points out that there are several common mistakes that can wipe out years of profits. Knowing them is essential to avoid falling into them.
A bad rescue
“The biggest mistake is saving the pension plan incorrectly,” says Feldman. “The money you withdraw from a pension plan is taxed as earned income under the personal income tax. So if you buy back a very large amount at once in a year in which you already have a high income, you can significantly increase your personal income tax rate and end up paying more than you expected,” he says. For this reason, the expert undertakes to develop a financial plan and a tax plan, which will allow the rescue plans to be distributed.
Invest without risk
“Many people stick to almost risk-free options within the retirement plan, when in reality, precisely because it is a very long-term investment, it is one of the products where it makes the most sense to assume some risk and include variable income and diversification, instead of sticking to ultra-conservative options,” explains the expert. “In addition, you invest not only your money, but also a part of the ‘state’,” he emphasizes, due to the tax advantage of being able to contribute raw money, before paying personal income tax.
Do not rate the product
“A retirement plan is not a single product, it is a framework in which you can choose between many different funds and strategies,” explains Feldman, who highlights for this reason as a common mistake “not to look at the commissions or to review the type of investment” that we are going to make. If you are diversifying or have variable income, among other options.
“Be careful, because taxation is not everything, it is important, but you also have to look at commissions, so that what you save in taxes is not lost in profitability,” he emphasizes.
Confusing the plan with the packaging
“Another misconception is to think that the retirement plan is the product, when in reality it is a tax structure that allows investing with different strategies within it,” specifies the economist, linked to the previous point. For Feldman, it is as important as reviewing and choosing the plan to choose the strategy you want to follow in investing.
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