Is investing in voluntary retirement funds at 30 too early?

Question from reader Minh Hang:

I am 30 years old, unmarried, and currently working as a KOC (Key Opinion Consumer) – people with a significant following on social media who try products and share their reviews, influencing the purchasing decisions of their followers.

My income is unstable, ranging from VND25-45 million per month, leaving me with a surplus of about VND10-20 million after expenses. Due to my freelance work, I do not have social insurance. Recently, I have been concerned that my current career offers little future security.

I have researched voluntary retirement funds, and most people advise investing in them as early as possible. However, my friends think I am worrying too much. Some say putting money into a retirement fund is like “burying capital” and suggest that if I have excess funds, I should invest in financial assets that offer good returns.

Therefore, I am seeking expert advice. Thank you!

Advice from Dang Thuy Trang, Personal Finance Planner, FIDT Investment Consulting and Asset Management Joint Stock Company:

Retirement planning is a lifelong journey, and it is never “too early” to start saving for it. Your concern about securing your future at an early age is prudent and commendable.

Retirement planning requires a comprehensive view of various aspects of your finances, including income and expenses, assets and debts, emergency planning, and risk management. This involves addressing the following three key questions:

When do you wish to retire? This will determine how long you have to accumulate assets for your retirement. For example, if you plan to retire at 60, you still have over 30 years to save. If your goal is early retirement at 40, you have only 10 years left to build your fund.

What are your expectations for retirement? What will your lifestyle be like? Will you continue working to earn an active income, or do you prefer leisure activities, travel, and sports? Detailing these desires, along with the required income and associated expenses, will provide a clearer picture of the savings required.

How can you achieve your retirement savings goal? This step involves compiling all factors related to your current income and expenses, assets and liabilities, and socio-economic risks, like inflation, to develop a specific plan for accumulating retirement funds. Selecting and distributing capital to financial instruments will depend on your savings goals, as well as risk appetite and any changes (if any) to your personal life such as getting married, having children, or having financial dependents.

Advantages of Voluntary Retirement Funds and Key Points to Consider

There are various tools and methods for you to accumulate savings for your retirement goals. The voluntary retirement funds you are exploring are one of these options. These funds are financial tools that help participants receive additional income during retirement through regular and long-term investments in pre-designed funds.

With this approach you can accumulate savings periodically from small amounts, starting from a few hundred thousand dong per month. The low contribution requirement helps reduce financial pressure when your income is unstable. These savings may be deductible for personal income tax purposes, but only up to VND1 million per month.

You can choose a fund that matches your risk appetite. The investment will be managed by experienced professionals from the fund management company, and the progress of your savings will be transparently reported.

It is important to note that these funds are tailored for the specific purpose of accumulating finances for retirement. Therefore, you will only receive these payments when you are of legal retirement age.

Additionally, you can only deduct the retirement contributions if you are already enrolled in Social Insurance, so you should consider enrolling in voluntary social insurance first.

Voluntary retirement funds are common in many developed nations. However, the options for retirement funds in Vietnam are still quite limited, with most being utilized by businesses for their employees rather than for individuals.

Investing in other financial assets

You also mentioned investing in “financial assets,” which is a very broad concept. The variety of financial tools and products available for investment is extensive, each with different potential returns and risks.

For instance, savings accounts are considered a relatively safe option for accumulation, suitable for low-risk individuals but only yielding 5-6% annually. On the other hand, the stock market offers the potential for significant growth of up to 12-15% annually but comes with greater risks, suitable for risk-seeking investors with the necessary time and expertise for investment management.

Rather than depending solely on one investment tool, take time to comprehensively review and build your financial plan, focusing on your retirement goals. I recommend considering the following key points:

Emergency fund. Allocate a specific amount for emergencies such as illnesses, loss of income, unexpected needs of family members, etc. This amount should be equivalent to at least 3-6 months of expenses, which should be VND30-60 million if your income is VND20 million and your monthly expenses are VND10 million.

Insurance. Enrollment in Health and Voluntary Social Insurance is vital for building a retirement fund and covering healthcare costs.

For private insurance (life or non-life), prioritize plans that protect against risks to your life and health like death, accidents, and severe illnesses. These risks can lead to substantial financial and medical costs, potentially impacting your family’s life and long-term financial plans.

The ideal insurance fee is typically 5-8% of your annual income. For example, with an income of VND20 million, your total annual insurance fee should range between VND12-20 million, averaging VND1-1.6 million monthly.

Some insurance companies offer products targeting retirement plans. You can consider these options once you have insurance and your income has increased.

Income and Expense Management. With a monthly income of VND20-45 million and a post-expense surplus of VND10-20 million, your surplus ratio (44-50% monthly) is commendable.

However, given the unstable nature of your profession and income, it is advisable to adopt a “save first, spend later” approach to maintain long-term savings. Explore budgeting methods such as the 50-30-20 rule, in which 50% of your income is used for necessities, 30% for flexible spending and 20% for investment or savings.

Asset portfolio. Effective investment involves balancing return rates, diversification, liquidity, and risk optimization. Whether you are investing in stocks, bonds, real estate, or other assets, focus on long-term, consistent, and disciplined accumulation of wealth for retirement goals. Aim for the long term, like 15-20 years or more ahead, when investing.

In conclusion, starting early in retirement planning is essential, but it should not be rushed. There is no perfect plan that suits everyone, as each person’s financial situation is unique.

Alongside financial planning, accumulating knowledge and experience to enhance your income and make sound decisions will ultimately help you create the most appropriate financial plan for yourself.

*The question and answer were translated into English by AI.