If they were not limited financially, people in Lithuania would most like, after retirement, to spend their time on hobbies, tending their yard or garden, and travelling the world. That was shown by a representative survey for INVL Asset Management, one of Lithuania’s leading asset management companies, conducted this summer by Spinter Tyrimai. Financial experts note that realizing such desires is only possible with advance preparation and the accumulation of a supplementary pension.
Retirement wishes vary but also require money
Asked what they would like to do during retirement if they had enough money, the largest number of the Lithuanian residents surveyed said they would like to spend time on their hobbies – 45% of respondents said that. Meanwhile, 39% said they would like tend their yard or garden while living in Lithuania, and 32% would like to travel abroad.
Next most common was the desire to spend time with one’s own or one’s children’s families, 31% of respondents would like to do after retiring. For 27%, attending cultural, sporting and education events would be of interest, and a quarter of respondents would move to some desired place in the world. Another 15% would like to write about and organize the experience they have acquired to share it with others, while 12% would like to take part in social or community activities.
“Putting most of these desires into practice requires having enough money. To ensure not only a dignified standard of living, but also the opportunity to fulfil your desires, it’s vital while you’re still working to arrange for additional income in your old age, and that’s what pension funds are for,” said Dr Dalia Kolmatsui, the Head of Pension Funds & Retail at INVL Asset Management.
She noted that in considering the possibilities for accumulating in pension funds, what is important is not just how long one accumulates, but also the fact that the state also contributes to payments into 2nd pillar pension funds. “That’s why we recommend that both people who are just starting a career and those who are already working assess their options for accumulating additionally in pension funds,” Dr Kolmatsui said.
How much money a person needs in retirement can vary, not just for basic needs, but also for hobbies, gardening and travel, depending on what each of us chooses, she said. “But you can hardly expect to fulfil such desires with just the pension paid by the Sodra state social insurance, without other sources of income too,” Dr Kolmatsui said.
As of July this year, the Sodra pension in the country for those with the required length of service was 323.70 euros, while the average wage after taxes in the second quarter of the year was nearly 722 euros.
Fulfilling key desires in retirement would have a price
Looking at the prices of different services, today a ticket to the theatre or a basketball game, for example, might cost less than 10 euros, but it could cost several times more depending on the event and desired seats. And if you want to attend an event in another country, the price of tickets may be a lot more, not including the costs of travel. Meanwhile, annual membership at a fitness centre may cost proximately two hundred euros or more.
Those who like to garden or tend to their yard or lawn also face certain expenses – a single seedling or plant can easily cost 6 to 12 euros, and while you may find a lawnmower for less than 100 euros, it could well cost several times more. Money is also needed every year for fertilizer, pest control and other lawn and garden products.
And those who want to travel should of course plan for even bigger expenses: depending on the details, a trip to a country in Europe could cost up to 1000 euros or more, and the price tag for a visit to somewhere more exotic may well total a couple or even several thousand euros.
Ongoing pension reform will encourage more people to save
With 2nd pillar pension funds, it is possible to accumulate money apart from one’s Sodra pension in a personal pension account, and in old age to receive a pension from two sources: from Sodra and the pension fund. As of 2019, the formula for 2nd pillar pension accumulation in pension funds is changing, and after the tax reform, people who are employed will be able to allocate more money to accumulation in pension funds. Starting in 2023, all 2nd pillar participants will accumulate according to the formula “3+1.5” (a contribution by the participant of 3% of their gross wage plus a contribution by the state of 1.5% of the average wage in the country during the year before last).
People accumulating prior to 2019 at the maximum rate (on a 2+2+2 basis) next year will shift to the new formula automatically, while those accumulating minimally (on a 2+0+0 basis) will move to the new formula gradually or will be able to choose whether to change this formula right away. It will also be possible, from the start of 2019 until the middle of the year, to halt accumulation in a fund, leaving the money there or returning with the accumulated amount to Sodra. And starting in 2019, there will be more people participating in the 2nd pillar pension accumulation system, since all employed people below the age of 40 will be included in the system with an option to refuse.
“Maximum accumulation lets you accumulate more for your future pension and at the same time get the biggest possible state incentive. In addition, to achieve one’s financial objectives more easily, it’s advisable to consider also accumulating in 3rd pillar pension funds,” Dr Kolmatsui noted. In order to maintain one’s current standard of living after retirement, ensuring income that is about 80% of one’s pre-retirement level is recommended. To do so, it is advisable to consider accumulating in not just 2nd but also 3rd pillar pension funds.
INVL Asset Management, which is part of the Invalda INVL group, has been managing pension funds from the very time it was established in 2004. The company also manages mutual funds, alternative investments and individual portfolios. Over 190 000 clients in Lithuania and Latvia and international investors have entrusted the Invalda INVL group’s companies with the management of more than 650 million euros of assets.
Note: When referencing these survey results, please identify the source.