14.03.2025
Nearly a third (29%) of individuals over the age of 50 plan to delay their retirement for as long as possible, according to a survey commissioned by LHV and conducted by Norstat. Among those already of retirement age, one in ten plans to continue working for the rest of their lives.
‘The desire to enjoy the fruits of long-term effort and leave from the labour market at pension age is understandable. However, for many, this increasingly distant dream is slipping further into the future,’ Vahur Vallistu, the Chairman of the Management Board at LHV Varahaldus, said. A large number of people in Estonia simply cannot afford to retire due to the risk of poverty, he added. ‘The rising cost of living undoubtedly squeezes household budgets more and more, and the pressure to rely on the state pension for survival is growing. Without additional savings, it becomes increasingly difficult to manage in retirement,’ Vallistu commented.
Planning for retirement is part of financial literacy. It involves the readiness to make important decisions from the moment one enters the job market. Vallistu emphasised that every individual should have the opportunity to focus on what truly matters to them in their later years. Unfortunately, a large portion of Estonia’s population still relies on the state pension, which, according to analyses, will only account for about a third of the average salary in the future. ‘Without sugar-coating the situation, this will only be enough to cover basic needs. However, Estonians can expect to live nearly 15 more years after reaching pension age, which should ideally be spent in dignity. This requires a financial buffer that cannot generally be built within just a few years, but demands long-term contributions,’ Vallistu noted.
According to him, just a few simple steps can significantly increase one’s financial security for the future. ‘Consistent contributions to the second pillar are one of the most effective ways to build financial security. Increasing your personal contribution to 4% or 6% provides an additional boost to the value of your assets,’ Vallistu said. Higher contributions could mean tens of thousands of euros in extra income for retirement. For instance, a 25-year-old in Estonia currently earning the average gross salary of 2,000 euros, with a 2% contribution, would accumulate 112,000 euros by retirement. However, with a 6% contribution, this amount would rise to 186,000 euros. When adding the average annual nominal rate of return of 3.9% on the second pillar funds in Estonia since 2002, the accumulated value of the assets at retirement would grow to 223,800 euros with a 2% contribution and 372,900 euros with a 6% contribution.
It is also wise to set up a regular payment into the third pillar, as the state refunds income tax on these contributions. The tax refund applies to amounts that are up to 15% of a person’s annual gross income, with a cap of 6,000 euros. ‘For investors, rates of return are crucial, and this year, for every euro invested in the third pillar, 0.22 euros will be refunded via the income tax declaration. On top of this, there is the additional rate of return from the financial markets, making the third pillar an attractive product in any portfolio focused on increasing financial security,’ Vallistu added.
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