According to the data of the Statistical Office, the average amount of the pension in Slovakia is around 700 euros. This is an amount which, according to the Finax survey, covers the expectations of only 6% of the population, the majority need more money for old age. At the same time, up to ¾ of Slovaks consider the optimal pension amount to be up to 1,500 euros per month. Most often, they state a pension in the amount of 901-1200 euros.
However, most people will have to make up the difference between the optimal and real amount of the state pension themselves, through individual investments. Pension calculators can also help in this, which make it possible to better compare the estimated amount of the future pension from the state with the required income and to calculate the amount that needs to be additionally saved by investing.
Expectations versus reality
The difference between expectations and reality thus points to a fundamental challenge of the Slovak pension system. Experts have been warning for a long time that in order to maintain the standard of living after retirement, the so-called compensation rate to reach approximately 60 to 80% of the original income. Of course, depending on how actively a person wants to spend the future pension.
However, the state pension does not reach this limit in most cases today, and due to the aging of the population, it can be expected that the situation will continue to deteriorate. This will result in a significant loss of income for people. For many, the transition to retirement will be associated with the necessity to adapt, or rather reduce, their standard of living, unless they create additional financial resources through investing during their active life.
How much will you miss? Everyone can calculate the answer
Therefore, the question is not only the amount of the expected pension, but mainly how much of the difference will need to be covered from one’s own resources. Today, everyone can simply recalculate this difference using pension calculators that take into account income, age or the amount of savings in state pension schemes.
Such a recalculation makes it possible to better understand how much savings will be needed to maintain the standard of living and how much it is necessary to save regularly by investing. “The state pension will represent only a basic income for most people. If they want to maintain their standard of living, it is necessary to make up the difference through their own savings and investments. The key is to start early and invest regularly,” says Linda Gáliková, head of PR at Finax.
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According to her, if we were to invest monthly, e.g. 100 euros, with an average expected return of 8% per year, such an approach can lead to savings of almost 150,000 euros after 30 years. After taking inflation into account, this amounts to approximately 80,000 euros in today’s value. If we would like to pay this amount gradually after retirement, at an average life expectancy, we could add approximately 380 euros per month to the state pension in today’s prices.
Time and correct setting are decisive
In the long term, the combination of state pillars and individual investment appears to be the most effective way of building pension security. Regular investing, even in smaller amounts, makes it possible to use the effect of compound interest and gradually create capital that can make up the necessary difference between the required and state pension.
The time horizon plays an important role. The earlier a person starts, the lower the monthly amount he needs to put aside. On the contrary, postponing the decision to later can mean significantly higher demands for future savings.
Current data thus confirm that, although Slovaks have a relatively clear idea of what kind of pension they would like, the reality of the system will require an active approach and own initiative in providing for old age.
