Planning for retirement: Key considerations for investing at this stage of life

At some point, most of us have wondered what life will look like after we retire. Although retirement may still seem a long way off for many, one thing is certain: life moves very quickly, and it’s important to be ready for this next chapter.

Careful planning is essential, because relying on the public pension alone is unlikely to be enough to maintain your current standard of living. As Fundación MAPFRE points out, “We need to save because the public pension we receive at retirement will be lower than our salary.”

In other words, because the public pension is likely to fall short of your post-retirement income needs, it’s essential to supplement it with private savings.

The demographic challenge: Is the public pension system sustainable?

Spain is facing an unprecedented demographic challenge: the population is aging, and the birth rate is very low, which weakens the balance between contributors and pensioners.

According to the National Statistics Institute (INE), the fertility rate has fallen from 2.8 children per woman in 1975 to just 1.12 in 2023. At the same time, life expectancy has risen to 83.77 years.

Often referred to as the “demographic trap” (an accelerated aging population and limited generational replacement), this combination means that a shrinking number of contributors will need to support an increasingly large number of retirees. Currently, there are approximately 2.6 workers for every pensioner, but by 2050 this ratio is expected to drop to just 1.6. This growing imbalance puts “enormous pressure” on the public pension system.

Given these developments, experts stress that workers need to bolster their private savings to supplement official pensions until effective solutions are found. The earlier you start saving and investing for retirement, the less effort you will need to put in, and the better your chances will be of maintaining your standard of living in the future.

Investment products for retirement

With all of this in mind, if you want to avoid being caught off guard when planning for retirement, there are several long-term investment vehicles that can help make your retirement years more comfortable. Let’s take a closer look at them.

• Individual Pension Plans: The main private savings product for retirement. They work like mutual funds with a long-term focus, aiming to accumulate capital to supplement your public pension. Contributions reduce your taxable income under the IRPF (up to €1,500 per year or 30% of net income under current regulations), providing immediate tax savings. Funds can usually only be accessed at retirement or under specific legal circumstances (disability, dependency, or long-term work incapacity). The returns depend on the pension fund’s investment strategy, which can be focused on fixed income, equities, or a mix of both.
• Employment Pension Plans: As we explain in this article, employment pension plans are the collective version of individual pension plans, set up by companies for the benefit of their employees. They work similarly to individual plans, but contributions are usually split between employers and employees, and the tax-deductible limits are higher (up to €8,500 per year in deductible contributions in most cases). These plans also offer tax deductions, and payouts are taxed as earned income under the IRPF.
• Insured Pension Plans (PPA): These products are very similar to conventional pension plans, but they come with a capital or return guarantee. They provide conservative savers with the reassurance that at least their contributions will be preserved (through a guaranteed technical rate). Despite this guarantee, the funds can still be invested in a variety of assets, depending on the plan. From a tax perspective, they work like other pension plans: contributions reduce your taxable income under the IRPF (up to €8,500 or 30% of income, similar to employment plans), and benefits are taxed under the IRPF when received. PPAs are ideal for those who prioritize security over higher returns. 
• Individual Systematic Savings Plans (PIAS): Long-term life insurance savings plan for retirement. They’re structured as investment-linked insurance (usually fixed-income instruments and guarantees), and they allow for regular contributions (up to €8,000 per year, with a total cap of €240,000). Their most notable feature is liquidity: the policyholder can withdraw the capital at any time, without having to wait for retirement or special circumstances (unlike pension plans). The trade-off is that contributions do not reduce your taxable income under the IRPF (they’re not deductible in the year of deposit like pension plan contributions are).
• Long-Term Savings Plans (PALP/SIALP): Insurance policies or deposit accounts designed for very long-term savings. Introduced in Spain after the 2015 reform (also called the “Savings Plan 5”), each taxpayer can only hold one plan (either a SIALP–Individual Life Savings Insurance–or a CIALP–a Savings Deposit Account). You can contribute up to €5,000 per year, without affecting the limits of other retirement savings products. The main advantage is tax-related: if the plan is maintained for at least five years, all earnings are fully exempt from IRPF.
• Mutual funds and other investment vehicles: In addition to the products mentioned above, many people supplement their retirement savings by investing directly in mutual funds, managed portfolios, or index funds.

The most important step is to start saving as early as possible and establish a regular habit. Thanks to the power of compound interest, even small, consistent contributions can grow into a substantial amount of capital over time.

Each product comes with its own features and tax advantages, so it’s important to carefully review liquidity, taxation, and fees before making a decision, as well as considering your risk tolerance and life goals.

Getting guidance from financial experts, such as those at MAPFRE, can make all the difference. MAPFRE Gestión Patrimonial, our specialized financial advisory unit, helps first-time investors navigate their options and achieve their financial objectives.