Tarmo Tanilas, investment strategist at Swedbank. Photo: Jake Farra
Instead of wasting time writing comments on the Internet, let’s turn our children into millionaires, writes Tarmo Tanilas in an article submitted to the Edukas Eesti opinion competition.
Time well spent is like a plowed field, producing more crops than a field of great credit overgrown with nettles and thistles. We rarely think about what we have and constantly worry about what we don’t have. We complain about the lack of time, but we act as if it were infinite. Most people are only interested in spending time and few have the talent and will to value time.
In Estonia, savings are very unevenly distributed and the number of people living day to day has increased. The biggest problem with poverty is that it takes up all your time. It creates stress, forces you to do things you don’t like, destroys families and destroys health.
Poverty makes you jealous and makes you write in the comments that all the old guys showing off their choppers should get their hormones checked. For a while it gets better, but there is still no money in old age. However, there is a solution to this ugly problem: smart financial planning focused on compound interest!
A wise man lives by dividends
Warren Buffett didn’t become a billionaire by winning the lottery. Charlie Munger did not receive an inheritance. They didn’t waste their days commenting on the Internet, they put the most precious human resource, time, to work for them.
The most convenient second and third pillar payment schemes in Estonia are related to pension funds, where income tax is not payable, but the accumulated capital will be eaten up and at some point the money will run out. An annuity plan signed with insurance is not favorable to investors due to expensive commissions and is only suitable for those who live for a very long time. It is not possible to channel the capital accumulated for retirement into instruments that provide a stable cash flow.
At the same time, there are dividend aristocrats: companies that have been able to increase their dividends every year slightly more than inflation for at least a quarter of a century, have a stable business model and strong cash flow. With the Dividend Aristocrats portfolio, the retiree can live on dividends and not have to worry about the falling purchasing power of money.
A million-euro portfolio allows you to earn 3,000 euros in monthly dividends by investing in shares of dividend aristocrats, which is almost four times more than today’s average pension. By maintaining the accumulated capital and living on the dividends themselves, the next generation’s monthly cash flows will increase even more with smart financial behavior. The health of the state pension fund will improve and more money can be allocated to medicine.
Write a successful idea and win more than 10,000 euros!
Edukas Eesti is a competition from Äripäiv, Helmes, Eesti Gaas, If Kindlustuse, Ellex Raidla Advokaadibüro, Swedbank and Verston, where we are waiting for ideas to update Estonia’s success story and accelerate development in the form of an opinion article.
You can participate in the competition with a maximum of two papers, the length of the article is a maximum of 5000 characters (including spaces). The central evaluation criteria are the originality of the ideas, the feasibility and the brilliant presentation. Grand Prix brings the winner 10,000 euros, the second place 3,000 and the third place 2,000 euros.
The jury is made up of the owners and managers of the organizing companies, the competition is conducted by the opinion editor of Äripäv. The competition ends March 31, 2024.
The competition entries will be published in the special section opened in the opinions section of Äripäiv and on the Eduka Estonia Facebook page. The competition work and the author’s photo can be sent HERE. For technical problems and further questions, write to us [email protected].
New retirement savings plan
The biggest disadvantage of today’s pension system is that you can often start saving money for retirement only after almost a quarter of a century has passed since you were born. We know the benefits of compound interest, but we can’t make it work for us. The average annual return of the S&P 500 Index over the last 50 years has been 8.15%.
Being more conservative in calculations, a 25-year-old person must invest 371 euros per month with an average annual return of 7.1% to accumulate one million euros in 40 years. Obviously, this is not a feasible task for the vast majority of people. However, if you start collecting your pension as soon as your child is born, you need to find 60 euros a month to invest.
Only two euros a day are enough to retire stress-free with a million euro portfolio! Does it sound tempting? No doubt. With a gross salary of 1,000 euros the investor’s money is invested in the second pillar of 60 euros per month, i.e. two euros per day are needed to exactly reach the goal. People with higher salaries achieve the desired result sooner. To maintain the purchasing power of money, payments must increase each year based on inflation.
The last part of the equation is finding a solution to finance investments from the birth of the child until he enters the job market. By rounding up card payments, the average customer earns almost 20 euros per month on Swedbank’s Rahakoguja account. Beep-beep and money saved!
In the case of a middle-class family with two children, it is sufficient for each parent to invest 200 euros a month in the third pillar, in addition to rounding up the fundraising quotas. The refundable income tax of 480 euros per child can be transferred to his retirement account. With this trick you can invest smartly to protect yourself and your child’s future.
When you give up the third pillar, you need to make a standing order of 10 euros per week to the Fundraiser and send it to the S&P 500 index with the money collected by rounding up card payments, and a child’s pension is secured. For families with three or more children it is worth looking for additional possibilities for partial financing from employers or the state.
When saving for retirement, it’s important to understand that what’s impossible in 30 years may be inevitable in 65. By participating in this voluntary retirement savings plan with half the amount, your children will still live twice as long as today’s retirees! There is no better or worse time to start investing.
It’s important to start as early as possible so that compound interest can do its job longer. We have to be smart and use time to our advantage.
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The author is a two-time winner of the Eduka Estonia competition.
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2024-01-18 02:00:00
lets-retire-with-a-million-making-the-most-of-our-time