Although we should know the services they provide and their differences, we ignore a lot about the Afores. Sometimes it is enough for us to talk informally about the subject with relatives or friends and exchange opinions almost always just as imprecise. This is why myths about the Afores have arisen. And like most myths, they are very far from the truth.
Not learning about saving for retirement is like committing « financial suicide. » Although it is a long time before the withdrawal, the issue should be investigated, there are actions that can be taken from now on, such as saving additional amounts.
barely 70% of current income can be enough to live with decorum and that because of the decrease in expenses in retirement. Photo: Pixabay.
In order to have better knowledge about the accounts of the Afore, the National Commission of the Retirement Savings System (Consar) prepared a study on the subject, in particular how decisions are made regarding the Fund Administrators for the Retirement. The study raises 10 myths and realities of voluntary savings in Afores and these are the results.
Myth 1. I will be able to support myself in old age with only a third of my current salary
Although it may seem surprising, 40% of those surveyed consider that retiring with a salary equivalent to a third of the income they currently receive will be enough to cover their expenses. However, to achieve this they would need around 70% of that income, because over the years there is a decrease in what is spent because the children become independent, because the credit is paid if they bought a house and transportation costs or gasoline to go to work are no longer made.
Myth 2. I will live off my own business when I retire.
Many interviewees express this purpose, but it is unlikely that they will turn their wish into reality, as they get older the probability of starting a business decreases.
The amount of money that is required to start a business is considerable and the savings that exist in the Afore account will not be delivered in an exhibition, but as a life annuity. If you really want to have your own business, you must save in advance.
Myth 3. I want to retire before turning 60
In the survey, many savers expressed their desire to retire before they were 60 years old. There are legal and financial impediments that prevent making the wish come true, because the age for retirement has been set at 65 years. It is true that early retirement can be made at age 60, but with a lower pension.
With early withdrawal, the period that the pension will cover increases, so the amount saved must be distributed in more monthly payments, which will decrease the amount received each month.
Pensions will be lower than expected and will not be enough to cover needs, which will make it necessary to continue working longer.
Myth 4. It is difficult to save voluntarily in the Afores
Savers consider the process to increase what they have in the Afores to be complex. This is not the case, since 2013 the Consar has the options to make additional deposits.
When you started saving on a voluntary basis, deposits had to be made at Afores branches. You now have five options:
Electronic Domiciliation. 7-eleven, Círculo K, Extra stores and in Telecomm branches. AFORE window. By the boss. By Internet, in the links of the Afore.
With the incorporation of convenience stores, the number of recipients of savings has doubled, there are more than 4,600 new points where money is received.
Myth 5. I cannot save an extra amount in my Afore because I earn very little
Although it is true that the ability to save depends on socioeconomic factors, there are other barriers that restrict the ability to save:
Saving for retirement feels like a sacrifice is being made, as if paying a tax, it is not seen as an investment for the future. The future looks remote and decisions, even if they are important, are left for later. The increase in the savings in the Afore disappears as a priority because the benefits that can be obtained come in the future. Savers do not have enough information about the benefits of making this additional saving, so it is complex, it does not attract them.
Myth 6. What I save will be enough to maintain my current standard of living
57% of those surveyed indicate that what they save will be enough to maintain their current standard of living. Due to savings trends, most savers will not be able to achieve that goal. These expectations cannot be met because the contribution level is 6.5% of the Base Contribution Salary, which is equivalent to 711 days of daily salary for an estimated retirement of 20 years.
Myth 7. They will not return the money I have in the AFORE
Although the benefit of the Afore account has been publicized, skepticism remains among savers that they may not receive the resources of their account.
This is because savers think that the resources are managed by the government or that it can appropriate them. It is not like this. When the worker begins the process to dispose of their resources, the Afores must pay them in 5 business days or less.
Myth 8. It is more convenient to save my money in the bank
The Afore have proven to be the best savings instrument in Mexico, they have had yields of almost 6% per year in real terms (after discounting inflation). Other savings options pay returns that do not cover inflation or are unsafe.
Almost 40% of the deposits in individual accounts are the product of returns that have been achieved with the investment of the mandatory contributions.
Myth 9. I cannot save in an Afore for working on my own
Since 2005, independent workers can save in an Afore, they do not do so due to lack of knowledge of the benefits, mistrust, lack of foresight and other factors.
Freelancers should be the most interested in saving for their future, if they start saving late they will not have an acceptable standard of living in old age.
Myth 10. I do not save on my own because the time and amounts are forced
The voluntary savings subaccount is a flexible one, since the money comes from the worker, and the savings are made according to the possibilities of each worker and when he decides.
Some forms of voluntary savings may be unknown to the worker:
Short term. – They are invested for the short term and this money can be made available after 2 or 6 months. This will depend on the Afore you are in. Long term (retirement) .- The investment remains in the account of each worker until he reaches 65 years of age.
The saver determines the term and the amount, from 50 pesos in convenience stores, to which he wants to invest his money.
More information in our Retirement Section.