Saving for retirement
Saving for retirement means preparing today the money you will need when you stop working. In Spain there is a public pension, but it is wise not to rely on it alone: supplementing your retirement with your own savings gives you security and options.
Why the public pension is not enough
The public pension works on a pay-as-you-go basis: the contributions of those working today pay current pensions. With an ageing population (more retirees per worker), there is long-term pressure on the system. In addition, for many people the pension means less income than their final salary. Saving on your own covers that gap.
Your best ally: time and compound interest
The most powerful factor is not how much you save, but when you start. Compound interest (earning return on the return already accumulated) needs time to work its magic.
Example: contributing €100/month at 6 % a year over different periods:
| You start at... | Years to 67 | Contributed | Approx. final value |
|---|---|---|---|
| 25 | 42 | €50,400 | ~€227,000 |
| 35 | 32 | €38,400 | ~€116,000 |
| 45 | 22 | €26,400 | ~€55,000 |
Someone starting at 25 contributes only twice as much as someone starting at 45, but accumulates more than four times as much. That is the reward for starting early.
How much should I save?
There is no single figure, but these ideas help:
- Aim for a sustainable savings rate (the share of income you set aside); the 20 % block of the 50/30/20 rule is a good starting point.
- Estimate your goal with the FIRE number logic (annual expenses × 25) to get an idea of the capital you would need to live off your assets.
- Raise the contribution every time your salary rises: you won't feel the effort.
Which vehicles exist in Spain
- Pension plan: gives relief in the general base (limit €1,500/year), but on withdrawal it is taxed as employment income. It is tax deferral, useful mainly if your rate will be lower in retirement.
- Index funds: widely used for the long term for their low fees, global diversification and the advantage of tax-free transfers in Spain.
- Account or deposit: only for the emergency fund and the short term; over the long term they don't beat inflation.
A common combination: emergency fund in an account + periodic contributions (DCA) to index funds + perhaps a pension plan for the relief, depending on your case.
Mistakes that cost years of retirement
- Waiting until you "have more money" to start. Every year you delay is a year of compounding you can't get back (see the table above).
- Putting everything in a pension plan for the tax relief. It's deferral, not a gift: on withdrawal it's taxed as salary. The deductible limit is €1,500/year.
- Leaving long-term savings in an account or deposit. With 2-3 % inflation, over 30 years you lose purchasing power even if the number doesn't drop.
- Not raising contributions when your salary rises. It's the most painless adjustment and the highest-impact one.
What to do today
Automate a transfer on payday into a global index fund, even if it's €50. Estimate your target with the FIRE number logic and check once a year whether you can raise the contribution. What matters isn't picking the perfect product; it's starting early and not stopping.
This is educational information, not tax or investment advice. Consult a professional to plan your retirement.