Retirement income: 5 solutions worth exploring

Here are 5 solutions for generating income in retirement and planning for a new phase of life.

The transition to retirement is one of the life’s most challenging moments. It marks the end of an active working life and the beginning of a new phase. Learn about 5 solutions that can help you achieve a higher income in retirement.

1. Investing in shares, potential for growth

Investing in shares is one way to generate income in retirement, especially for those who want to maintain liquidity. Investors benefit from share price growth and dividends paid, which can be reinvested while you are still working to generate income.

However, remember that share prices can fluctuate sharply in a short period of time, so there is risk involved. But if you build a diversified portfolio and stick to a good long-term strategy while you are still working, you will have a better chance of generating returns that you can use in retirement.

2. ETFs, easy and efficient diversification

Os ETFs are investment funds that track market indices, such as the S&P 500. This is one of the best known examples and tracks the performance of the 500 largest American companies. Since its inception almost 100 years ago, this index has generated average annualised returns of 10%, making it attractive to investors. In this way, and similar to the rationale explained for shares, investing in ETFs tends to be a way of generating income during working life, with the prospect of a long-term return in retirement.

Caption: SPY ETF chart, which tracks the SP500

ETFs can be bought and sold like individual shares at any time during trading hours. They are a good option for investors who want to diversify across a wide range of assets, such as stocks, bonds, commodities or sectors, without the need for individual selection. As such, it’s an easy way to balance and protect a portfolio.

See also: Guide to investing in an ETF

3. Dividend funs, for a regular stream of income

Dividend funds are investment funds whose investment policy includes the regular distribution of income. They can be equity, bond or multi-asset funds. They are a way of providing a steady and regular income to complement the capital growth that these funds seek.

With this solution, investors don’t need to select assets one by one, they can have a diversified portfolio of assets with a single position, and they can be exposed to the financial market with dedicated professionals managing the fund’s investment strategy, complementing these advantages with regular remuneration.

4. PPRs (Pension savings scheme)

PPRs are widely recognised as one of the most popular savings solutions for retirement planning in Portugal. These plans offer several advantages, particularly in terms of tax benefits and flexibility of investment options.

One of the key features of PPRs is that the IRS allows contributions to be deducted up to certain limits, which helps to reduce the annual tax paid. In addition, PPRs offer a wide range of risk profiles, from conservative solutions to more dynamic options. This diversity allows investors to choose the PPR that best suits their risk profile and time horizon.

Redeeming PPRs is flexible, but subject to conditions. Although you can withdraw the capital before you retire, there are rules that define the circumstances in which this can be done without incurring penalties, such as long-term unemployment or serious illness. Outside of these specific situations, early withdrawal may result in the need to pay back the tax benefits received as well as other penalties.

Given their structure and objectives, PPRs are particularly suitable for investors who want to save specifically for retirement, with a focus on security and tax efficiency.

5. Unit-linked product

Unit-Linked products are a flexible and attractive option for those interested in long-term capital accumulation through a combination of investment and life insurance. Unlike PPRs, unit-linked products are more suited to investors who want greater control over their investment strategy and who value personalisation.

The main feature of unit-linked products is their hybrid nature, combining investment in funds with a life insurance component. This can be particularly attractive to those who wish to provide additional protection for their beneficiaries while building up savings for retirement. The main attraction of unit-linked products is their investment flexibility, which allows the portfolio to be diversified across different types of assets, such as equities, bonds and even alternative assets. This flexibility allows investors to adjust their portfolio over time according to their risk profile and financial objectives.

Although unit-linked products don’t offer the immediate tax benefits of PPRs in the accumulation phase, they can offer significant tax benefits in the redemption phase. Under current legislation, a significant portion of the income can be exempt from tax after investment periods of 5 or 8 years, making them an attractive solution for those planning a long-term retirement.

Unit-linked products are therefore a suitable solution for investors looking for flexibility and greater personalisation of their investments, with the added benefit of including a life insurance component.

See also: What is a Unit-Linked product?

Banco Carregosa, the advice you need for your retirement income

These are some of the solutions you could consider for generating income in retirement. As with any investment, it’s important to consider your personal financial goals, risk tolerance and investment horizon before making a decision. Diversifying your portfolio with several of these options can help you build a solid retirement plan tailored to your needs. You can count on the Banco Carregosa team to advise you on this choice and help you make an informed, conscious and personalised decision.