Spaniards will have to have saved at least an amount equal to the current purchasing power of 120,000 euros by the time they retire. to be able to supplement the public pension with an additional 1,000 euros per month for 10 years. Of course, it is “essential” to avoid “high” management fees, because they “significantly” limit the accumulation of financial assets in the long term.
This is one of the conclusions of a study by Professor Javier Díaz-Giménez, from IESE Business School, commissioned by Trade Republic. This economist explains that, invest 50 euros per month for 40 years in an investment plan with an expected real annual return of 7%the savings accumulated for retirement will be 128,166 euros.
By analyzing historical data, the study also quantifies the benefits of long-term investment in capital markets through efficient investment vehicles such as index funds (ETFs).
Analyzing the profitability of the S&P 500 and the inflation rate in the United States since 1970, Professor Javier Díaz-Giménez calculates that the average annual return of the S&P 500 has been about 7% over the past 50 years, excluding the impact of inflation, which averaged 3.8% per year in the United States during the same period.
“These are exceptional results that illustrate the benefits of access to the capital market for long-term savers,” the study says. However, management fees charged on investment products can “significantly affect long-term returns.”
Thus, the report points out that deducting an annual management fee of 2% from the S&P 500’s 7% annual historical return can reduce 55% of assets accumulated after 40 yearswhich indicates that it is “essential” to select investment products with low commissions.
The need to save is justified by the study on the challenges that the public pension system will face, which, according to the forecasts it echoes, in 2044 the cost of retirement pensions will double,either it shows the structural deficit that the system is facing and anticipates “forced” adjustments.
“The reasons for this sharp increase in costs are worrying. “By analyzing the public finance figures and combining them with the demographic and revenue forecasts of the Public Treasury, we can conclude that the public pension system is under enormous pressure. Over time, the situation will worsen, unless the forecasts change significantly and unexpectedly,” explains Díaz-Giménez.
