Secure Your Future with Retirement and Savings Investments

Parallel to the aging of the population, the burden on the public social security system has increased in many developed and developing countries of the world, and this has led countries to implement gradual social security systems. Social security systems consist of three stages.

These are the systems formed by public social security institutions, social security systems formed by fund-based retirement systems, and social security systems formed by private retirement systems. The system formed by public social security institutions is based on mandatory participation and salary.

The fund-based retirement system is workplace-based salary-based or contribution-based. Private retirement systems, on the other hand, are based on voluntary participation and funds.

The Individual Retirement System (IRS) was first successfully implemented in countries such as the USA, England, Australia, and the Netherlands, and later began to be implemented in developing countries such as Chile, Peru, and Mexico.

What are retirement investments and why are they important?

A pension investment fund refers to the assets created for the purpose of distributing the risk and operating the contributions received by the pension company within the framework of the pension contract and monitored in individual pension accounts on behalf of the participants according to the principles of fiduciary ownership. Investing in individual pension funds creates some basic advantages.

These advantages are summarized as follows in the study conducted by experts:

1. a) Diversification of Risk and Retirement Security: It is possible to diversify and rationalize the risk arising from the nature of the investment and the system itself. In other words, since the paid contributions are evaluated in pension investment funds, there is a risk minimization that investors cannot reach on an individual scale.
2. b) Saving Time and Information: The greatest contribution of making a corporate investment to the participant means that the investment is managed most effectively by professional staff, and this situation provides individuals with the opportunity to save both time and information density.
3. c) Ability to Make Large-Scale Investments: As a result of corporate investment, individuals can benefit from the synergy that emerges as a result of economies of scale. Pension investment funds are of great importance in many developed and developing countries of the world due to their characteristics of being institutions and institutional investors that provide long-term funds to the markets.

What is the Individual Retirement System (IRS) and how does it work?

In developed countries, due to the aging of the population, the balance in the social security system has been disrupted, and this has necessitated social security reform. At the same time, with the changing economic conditions, the restructuring of the social security system has come to the fore worldwide, especially in the last 20 years.

In developing countries, on the other hand, restructuring is taking place in the system in order to bring the social security service provided to individuals to a higher quality and higher level.

As the population ages and this problem negatively affects the financial structures of public retirement systems, public authorities have started to work on the implementation of private retirement funds in retirement systems. For this purpose, private retirement system applications that include individual retirement funds, occupational retirement funds or both have been put into practice.

When we look at the applications of individual retirement systems around the world, they have become a tool to eliminate the negatives that have emerged and are likely to emerge in social security systems.

Based on the savings that individuals regularly accumulate during their working lives, the IRS has been providing citizens of developed and developing countries with a secure future opportunity for many years. Individual retirement systems exhibit different characteristics depending on the socio-cultural and economic conditions of societies.

How to create long-term savings plans?

One of the most important factors to be done in order to create a long-term saving plan is a great plan. You should evaluate the part of your monthly income that is not required for your expenses, allocate as much as you can to saving for your financial health, and proceed with a plan.

As the first step to increasing your savings potential, you need to keep your income and expenses balanced at a good level. Savings potential calculation basically shows how much you can remain at a positive level when you subtract your income from your expenses at the end of the month. 

In order to increase your savings potential; you can acquire new sources of income, create a spending plan by regularly reviewing your expenses, make savings for the future, and set short-term goals to save for your upcoming expenses.

The concept of financial freedom is a misconception today as “spending money freely”. The concept of financial freedom shows how long you can continue your life in the event that you do not have any income, in other words, your financial freedom score.

You can think of the score, which you can calculate by dividing your liquid assets by your monthly average expenses, as an emergency fund. Being prepared for unexpected expenses is of great importance in financial health assessment.

One of the major problems of today, debt, is one of the factors that threaten financial health to a great extent. Debts should be reviewed again after personal net worth analysis.

Your insurance rate and whether you are insured or not are very important in order to be financially prepared for any unexpected situation (accident, illness, etc.). Being insured positively affects the financial health score.

What are the savings methods for children?

As parents, you can be individuals who can manage the money they receive and are thrifty, but this is not enough for your child to be a thrifty person. At the same time, you have to convince your child about the benefits of being thrifty and its positive effects on their own life and the world.

The natural resources in the world are gradually decreasing, and your child should understand that they will contribute to this with their uneconomical behaviors. You should be able to explain to them that their only goal while trying to be a thrifty person should not be to please you.

You should explain the positive effects that being thrifty will have on their own life. The protection of the world’s resources will positively affect both their future and the future of their children; your child should understand this and act with this awareness.

Giving books and less used clothes at home to people in need and making the child aware of this is beneficial for the child to learn to save money and to gain a sense of social responsibility. 

Children are more affected by actions than words. It is important for adults who want to teach children to save money not to contradict themselves, this confuses the child. You keep telling your child about the benefits of being economical, but he sees you brushing your teeth and leaving the water running even though you are not using it. In this case, the advice you give will not mean much to the child.

What are the tax advantages of retirement investments?

In international banking regulations, it is stipulated that the profits of capital companies are subject to corporate tax, and funds subject to the regulation and supervision of the Capital Markets Board are considered capital companies. Therefore, investment funds that do not have a legal personality are considered capital companies in terms of taxation.

Since retirement investment funds that are required to be established by individual retirement companies are also funds subject to the regulation and supervision of the Capital Markets Board, they are within the scope of the application of international banking regulations and therefore, the profits obtained by individual retirement funds, just like the profits obtained by individual retirement companies, are considered corporate profits by definition and therefore should be subject to corporate tax.

However, in the tax regulations made with international banking regulations in order to meet the tax consequences of the individual retirement system, the profits of individual retirement investment funds are excluded from taxation, and a tax incentive is provided to the individual retirement system.

The tax incentive provided to the individual retirement system is not provided to the profits of individual retirement companies but to the profits of individual retirement funds to be established by these companies.

Therefore, the earnings of individual retirement companies that own individual retirement funds will be subject to corporate tax in accordance with international banking regulations and income tax withholding within the framework of the regulations proposed by the Income Tax Laws; the earnings of retirement funds will be exempt from both taxes. In summary, retirement investment funds provide a reduction of tax liability.

See you in the next post,

Anil UZUN