In order to secure your golden age years, you should save up for your pension throughout your life, yet in earlier days we rarely prioritise pension and have different possibilities to address this matter. In this article, we will discuss how to plan your retirement years and what one should pay attention to.

When you are in your 20s: start forming your pension savings

There is no certain age when to start saving up for pension accruals, however, the sooner you start, the more you accumulate. Your contributions to the pension savings start when you start your first job and have official income, from which social insurance contributions are deducted: 14% of your monthly income go to the first pension pillar, and 6% - to the second pension pillar, in accordance with the effective legislation in Latvia. So, the higher is your income, the bigger are your contributions.

Pay attention to:

• Assessing the historical performance of various 2nd pension pillar plans* and choose the most suitable for you. For younger people, they usually recommend active plans, which tend to have higher potential yield, accumulating more pension capital for you over the years. However, keep in mind that the active plans also have a higher risk profile. But, given that your retirement is still decades away, you might as well take the risk now. If you do not make a choice about your 2nd pension pillar plan, then the State Social Insurance Agency (SSIA) will make a random choice for you, which might not always be the best solution, since the long-term performances of various pension plans differ greatly.
• Considering a possibility to join the 3rd pension pillar plan. Contributions to this pillar a voluntary and you can apply any time.
• Making sure you register your 2nd pension pillar savings as heritablein order for your beloved ones could receive it in case you don’t make it to the retirement.

When you are in your 30s: analyse performance of your pension plan

Approaching your 30s, it still seems your retirement is far far away to be bothered by it now, however it is worth knowing the amount of your savings and the performance of your pension plan. At this stage, the active 2nd pension pillar plans are still suitable for you, providing higher potential profits, even though having a little higher risk profile.

Pay attention to:

• If, for some reason, you do not know who your 2nd pension pillar manager is, find it out and assess the plan’s performance.
• If the results do not satisfy you, consider changing your pension planbecause you are not tied down to one plan for life. You can change your 2nd pension pillar funds manager once in a calendar year, and your investment plan within each manager – twice in a calendar year. It allows you to stay flexible and stay with the manager you really trust, while still choosing the pension plan most suitable for your age and long-term goals. And note that changing your pension plans does not cost anything.

When you are in your 40s: consider saving up more for your pension

Ideally, by now one should already be accruing pension capital for a while, but if you have not started yet, it is never too late to start.

Pay attention to:

• Careful analysis of your finances and assessing whether it would be possible now to join the 3rd pension pillar plan (if you still haven’t) or to increase the contributions you make to it if you already are a member in one.
• Finding out how much you have accumulated in all three pension pillars. You can request the latest data on your 1st and 2nd pension pillar capital by claiming your account statement on www.latvija.lvor at any office of the SSIA. In order to have a better understanding of your 2nd pension pillar plan performance, learn more about "5 criteria you should pay attention to in your second pillar pension account statement". For information on your 3rd pension pillar accruals and performance ask your fund’s manager.
• - Keeping in mind that the years of employment have major role in the formula of calculation of your pension amount. The most favourable conditions for your pension amount currently, in accordance with the effective legislation, are for those who have at least 30 years of employment, although the necessary minimum is 15. At the SSIA you can find out how many years of employment you have, and then assess is it enough for the most favourable monthly pension calculation formula, because the difference may be up to several hundreds of euros. If you come to a conclusion that the employment period is too little, you still have time to add up. Learn more about the meaning of your employment period here.

When you are in your 50s: reduce the risks

This is the time when retirement does not seem so far away, yet not so close for it to be too late to change something for a better pension amount. If you have accrued substantial pension capital over the years, you might feel safe and sound, however consider the risks.

Pay attention to:

• Should your 2nd pension pillar plan is of higher risk profile, perhaps it is time to move your funds to some more balanced plan with a lower risk profile.
• Calculating the potential amount of your pension in order to assess whether it will be enough for you. In order to find that out, enter the necessary data into the pension calculator your age, net salary, as well as the amount accrued in all three pension pillars. And you will have a perspective of your approximate income in retirement. Consider increasing your contributions to the pension savings.
• If you have been an active member of the 3rd pension pillar plan, keep in mind you can withdraw your savings already at the age of 55. It can be useful if you expect to need extra income at this age.

When you are in your 60s: plan your transition to retirement

In 2023, in Latvia people of 64 years and 6 months of age are entitled to the state old-age pension. In 2025, the threshold will be at 65. So upon reaching your 60s, it is time to start planning your retirement by investing the potential income and expenses.

Pay attention to:

• If at any point in your life you have been earning your income outside Latvia and made social insurance contributions in that country, e.g., EU/EEA member-state, then you should find out if you are entitled to pensionin accordance with the legislation of that country. If you have worked in several EU/EEA countries and have accumulated employment periods and reached the retirement age, then maybe you are entitled to receive pension in each of them.
• Consider reducing risks and moving your 2nd pension pillar accruals to some more conservative plan, because at this age, when the retirement is just a couple years away, it is most important to keep what you have saved with minimum fluctuations rather than focus on higher yield.
• If you consider applying for early retirement, take time to consider all the factors, since they may have substantial impact on your pension amount.
• Start planning the day of retiring in advance, because you can claim your pension no sooner than one month before the day you reach the set retirement age and reach the set number of employment years.

This article is not to be considered a personal consultation, however it provides a perspective on what should be taken into consideration upon preparing for the retirement years. Each case is individual, therefore one should always carefully consider all the factors and possible risks before making any decisions about their financial investments.

*Historical performance of a pension plan does not guarantee the same result in future.