To Never Retire

Spin that wheel for me

I was just looking at how much my compulsory contributions to my retirement fund will net me when I finally get to retire. Suffice to say...

I'm screwed!

And I am probably in a better position than many in this regard, because I am forced to add additional contributions, as I have to do it as I run a sole proprietorship too. However, due to Covid retractions, the income from that took a massive hit and hasn't recovered much - which is a shame, since it took me seven years to build and employment and entrepreneurship really aren't easy for a foreigner in Finland. I have worked very hard to not be the stereotype that many people here assume, and I have done it with zero safety net.

Feels pretty crap to start from near scratch again.

But, all is not doom and gloom, as I have thirty years to improve my position and twenty years until the life expectancy coefficient kicks in.

Oh, you don't know what that is?

I didn't either.

This is the basic formula to calculate monthly pension:

And since I had no idea what the coefficient was:

Five years before you reach your retirement age, your pension record will include an estimate of your target retirement age. Your target retirement age is a computed age at which the effect of the life expectancy coefficient has been offset by the increase to your pension due to late retirement. The estimate of your target retirement age is specified in the year in which you (as an employee or a self-employed person) turn 62.

So, there is a 5% drop in the 13 years from those born in 1947 to those born in 1960, the latest calculation as those people are turning 62 this year.

oh... wages are stagnant in many industries.

This means for example, that the 1.5% contribution amount is affected.

Using the example they gave for an entrepreneur:

Your confirmed income from self-employment = €28,000 Accrual rate = 1.5% Monthly amount of pension funds that your earn €28,000 x 1.5% ÷ 12 = €35 If you keep your confirmed income at this level for 10 years, you will have earned a monthly pension of €350.

If you did it for 40 years, it would be a staggering 1400€. (below the current poverty level)

Hmm. But of course, this isn't going to be all there is, because while this is the 1.5% accrual from the government pension, entrepreneurs and employees, have to pay a higher percentage in compulsory payments on top of the 1.5%.

Funnily, the example given is of the entrepreneur contributing 24.1% of their income, or €6,750 a year (€560/month). Doing this, they will have a yearly pension of €9,170, or €764 a month

Lol!!

So, a person running a small business earning 2,300 a month gross income, is expected that on top of the tax of about 18% on the 28K, put an additional 24% into retirement for a total of €980 a month and live off 1300, in a country where the rent on a one bedroom apartment is €700 and a basic grocery shop for a week is 150€

Yeah... okay!

However, it is possible to deduct this in the taxation, so this is not the full picture.

But, most people don't earn 50K a year and, many people don't even earn the 28K a year. Plus, they don't earn 50K a year in a straight line, with many people earning far less when they are young compared to when they retire, and many people not having much of a ramp increase over those years at all. This means that the addition to the retirement is going to change significantly.

For example, the first year I was hear I contributed a "massive" 16€ to my monthly retirement pension, the first year of my business, it was 3€ and since I paid the minimum I could, it was only 17€ for most of the time. Now, I am earning from a full-time job plus paying the entrepreneurial compulsories, so it adds about 70€ to my monthly pension, in 25 years.

Oh, I should mention that there is a National Pension on top of this that is currently

In 2022, the full amount of the monthly national pension for a single person is 679.50 euros and for a married or cohabiting person 606.65 euros.

However....

Every euro of earnings-related pension reduces the national pension by 50 cents until, at a certain level of the earnings-related pension, no national pension is granted.

Should I increase my contributions?

Perhaps, because of the tax breaks.

In 2021, the average monthly earnings in Finland amounted to 3,681 euros. The average earnings in the central government sector reached 4,124 euros per month, while the corresponding figure in the private sector was 3,770 euros per month. source

Averages are dangerous to use as measurements, because they are skewed by the top end that generally peaks narrowly well above that of the median. There are plenty of people for example earing low 2000s working in supermarkets and the like and, they are going to retire one day too.

And, there are other differences between the top and the bottom ends, because while someone for example earning 50K a year is going to have a good chance of retiring at 67 being relatively debt free, another earning 2000 a month is probably going to be a renter, as well as face other financial challenges along the way, probably carrying more debt in general.

Also, those "tax breaks" obviously favor the higher end, because they are able to put more away without it having an impact on their lifestyle and then offset it through tax reductions on a much higher income.

And while these calculations are very rudimentary and don't factor in a whole range of things, this doesn't factor in inflation either, which is unpredictable, but we can use a couple averages.

The value of 1000 dollars at different inflation rates in 25 years from now.

2%

3%

4%

This means at 3% average inflation, the buying power of that estimated monthly income is significantly lower, being more than half less. It is no wonder so many retirees end up eating dogfood for survival.

There will be no dogfood for me!!

I think that I will spin the wheel and either this investment stuff works out, or I will "Soylent Green" it and check myself out with a cocktail of party drugs.

How's your retirement looking?

Taraz [ Gen1: Hive ]