Have you thought about what you're going to live on when you retire? The truth is that most Portuguese people will receive a pension far below their current salary. And that's why the State created PPRs, or retirement savings plans, and in the next few minutes we'll show you how they work, answer all your questions, and we'll come to a conclusion about whether it's really worth telling you a story. Maria works in Lisbon, earns a modest €100 a month, and at the end of the year, when she files her income tax return, she usually receives between €200 and €300 in refund. Not bad at all. While having a coffee, the company's accountant told him about PPRs (Personal Retirement Plans). Maria, did you know that if you invest €2,000 in a PPR (Personal Retirement Plan) you get €400 back? Maria did the math: investing €2,000 and receiving €400 back in income tax is a guaranteed 20% return in the first year. She believed it, but wanted to know more, because it seemed too good to be true. And when she started investigating, doubts arose: "So, what if I need the money? What if the PPR (Personal Retirement Plan) makes me lose money? What if there are better alternatives?" Maria's story is the story of thousands of Portuguese people, and today we're going to resolve all those doubts once and for all, because we at Desconheço make the most comprehensive videos on the most important topics in the lives of Portuguese people, with the mission of making financial literacy accessible to everyone. And with over 37,000 Portuguese people trusting us, we're not going to let them down today. Join our mission and subscribe so we can reach 50,000 before the end of the year. The first thing Maria wanted to know was: "But what exactly is a PPR?" Basically, it's like this: PPR is a way to invest your money for the long term. The idea is to supplement your retirement, because with social security alone , well, you've seen that it's not going to be enough for much . The most interesting part is that the sooner you start, the better. Why? Because compound interest needs time to work its magic. It's like a snowball; it starts small, but then it keeps growing bigger and bigger. And the cherry on top is that the state gives you tax benefits. That's why many people invest in PPRs here, for the tax breaks. Oh, and you can have as many PPRs as you want. You can even choose whether you want the tax benefits or not. Maria discovered that there are two types of PPRs (Personal Retirement Plans): funds and insurance policies. Let's look at the funds first. PPR funds are like any other , let's say, normal investment. Imagine it's like choosing the level of adrenaline you want. You can play it safe, with low risk and low returns, or you can take more risks and potentially earn more. They give a rating of one to set to the risk here. The set is the YOLO. Let's see what happens. And the one who wants to sleep very soundly is the one who wants to sleep very peacefully. But be aware, sometimes a safe level one fund can even outperform a risky level 7 fund. This is determined by the management companies that essentially take your money and invest it according to the strategy and risk profile you 've chosen. And now we have PPR insurance policies , which are for those who want a lot of security. This is especially for those who want maximum security. Sure, your money is guaranteed, but the returns are very low. It's like putting money in the bank, but with slightly better interest rates. When does this make sense? If you're nearing retirement and don't want any surprises, if you're 30 years old and you're putting everything into retirement savings plans, well, you're wasting the power of time and compound interest. Maria understood right away, well, under 50 years old, PPR funds, over 50, you want zero stress, so I'll go for PPR insurance. Now comes the part where Maria's mouth drops open. The accountant explained to him that there are two tax benefits in the PPR (Personal Retirement Plan). You get the benefit of free entry, let's say the money is free. This is the one everyone knows. You invest money in a PPR (Personal Retirement Plan) and the state returns 20% to you in the following year's income tax . But there's a catch here, it depends on your age. If you are under 35, like Maria, you can deduct up to €400 per year, meaning you can invest €2,000 to receive the full €400. Between the ages of 35 and 50, the limit drops to 350. You have to invest €1750 to get the maximum benefit. After the age of 50, the maximum deduction is only €300 , meaning an investment of €1500 per year. Maria did the math; if I invest the full €2,000 , I'll get €400 back. It's literally 20% guaranteed. But then he thought, wait, if it's this good, what do the tiny letters at the bottom of the page say? We'll see more about that later. Then you also have the exit benefit, which is lower taxes . And here comes the second surprise. Normally, when you invest or sell investments and make a profit, that is, capital gains, you pay 28% tax to the state. Although even in the stock market things have changed a bit. To learn everything, you can watch our video about ETFs. But in PPRs (Personal Retirement Plans), the rates are much lower. If you sell before 5 years, you pay 21.5%. Between the ages of 5 and 8, 17.2%. And if you have more than 8 years, you only pay 8.6% in surcharges. Maria asked: 8.6% instead of 28%? This is brutal pomp. But then came the question everyone asks. Maria began to suspect something. If it's so good, why doesn't everyone have a PPR (Personal Retirement Plan)? The answer is simple. The money is essentially frozen. If you want to take advantage of tax benefits, you can only withdraw the money without penalties in very specific situations, such as when you reach 60 years of age, if you retire due to old age, if you become long-term unemployed, if you are at home due to serious illness, and to pay mortgage installments. You can't amortize only the installments . And you also have the 5-year rule. If the PPR (Personal Retirement Plan) is more than 5 years old and at least 35% of the total value was invested in the first half of the contract's term, you can also withdraw it. If you withdraw the money outside of these conditions, you must return all the tax benefits you received, plus a 10% fine. And then Maria realized, "Ah, so it really is a long-term commitment." If I put €2,000 there and need the money the following year, I'm going to have some problems. Maria was excited about the benefits, but then she started investigating the costs. He found four types of committees that can exist. There's a subscription fee that you pay when you join the PPR (Personal Retirement Plan) or when you make additional contributions. Basically, when you put money into it. If you want to invest €1,000 and the commission is 2.5%, only €975 will be invested. The rest goes to the bank or the management company that runs the PPR (Personal Retirement Plan). Maria thought: "Well, I'm already losing money before I've even started." And then we have the transfer fee, which only applies to PPR insurance policies. If you want to switch to a PPR fund, you pay a fee. It's basically the bank punishing you for wanting to leave. Then we have the refund commission. When you want to withdraw the money, there may be a fee, because obviously having all the other restrictions isn't enough. And then we have the management committee. This is the most important one; it's what you pay every year to the people who manage your money. If the fund yields 3%, but the commission is 1%, you'll only get 2% net. And then Maria realized: "Wait a minute, these commissions could eat up a good chunk of my profits. And since we're talking about investment costs, let me take a quick break to tell you about XTB and the free bonus we 've created, which could be very useful for you. If you'd like to start investing in ETFs but aren't yet 100% comfortable, I have a suggestion for you. We've created a super comprehensive e-book on how to start investing from scratch to your first investment. I guarantee that if you read it and follow all the steps, you'll know everything and how to start investing with confidence. It talks about how to choose your first broker, how to make your first purchase, what mistakes to avoid, and how to organize your strategy. It's like having an instruction manual for starting to invest. And how can you get it? It's completely free if you open an account with XTB using the code I don't know. If you don't know XTB, which is also a partner of this channel, it's one of the brokers I most recommend for beginners. Why? Because first, it's regulated..." Registered with the CMVM here in Portugal. It's not just any platform lost in the middle of nowhere. Secondly, it doesn't charge commissions on stocks and ETFs up to €100,000 per month. And after that, it 's only 0.2%. For most of us, this means investing without transaction costs. And the best part is the investment plans that allow you to have automatic investments so you never forget to invest again. It also makes the process of declaring your investments on your tax return much easier, because XTB helps a lot in this area. Creating an account is simple, takes 10 minutes, it's all online, and you can start investing the same day. And note, you don't need much money, you can start with €50. If you're interested, the link is in the description. Open an account, receive the free e-book, and you have everything you need to get started. But remember that investing has risks. Never invest money you can't afford to lose. So, now you know how to start. Just open an account. On XTB with the code I don't know. Let's continue with the video. After learning all this, Maria had to make three important decisions. Decision number one, PPR fund or PPR insurance. Since she is 25 years old, it was easy. PPR fund. PPR insurance only makes sense when you are almost retired and want zero risk. Decision number two, how much risk do you want to take? Here Maria had to think seriously, the funds have risk levels from one to seven. She is younger, has more time, can risk more here at levels five to seven. If you can't tolerate losing money, you can go to the lower levels of one to three. But remember that past profits do not guarantee future profits. A fund can yield 5% for years and then lose money the following year. Decision number three, do you want the tax benefits or not? And here it gets a little interesting. If you choose to receive the benefits, the money is practically locked until you are 60 years old. If you don't choose, you can withdraw the money whenever you want, but you lose Those famous 20% guaranteed return in the first year. After investigating all this, Maria defined her criteria. First, a PPR fund, then a risk level of 5 because she has time to recover if things go wrong. Then, with tax benefits, because she wants those €400 annually and low commissions, especially the management fee. But then came the last question: "OK, but how much will I actually earn from this after 35 years?" Maria decided to do a complete simulation. Well, if I'm going to put money into this for decades, I want to know exactly what I can expect. She defined the scenario here: starting at age 25 and investing until age 60. Maria's plan was €2,000 in the first year until age 35 , then €2,400 per year, which is her €2,000 plus €400 from the tax benefit. After 35 to 50 years of age, €2,100 per year, or So, those €175 per month, which is €1750 plus €350 in tax benefits, and from age 50 to 60, €100 per year, which is €150 per month, which is €1500 plus €300 in tax benefits. Therefore, € 63,250 plus €250 will come out of Maria's pocket over 35 years. We won't count the tax benefits here as coming out of her pocket, because it counts as a refund, it's extra money from the state. After much research, Maria chose the Save and Grow PPR from Casa de Investimentos because it invests 100% in stocks; she's young and can take more risks. It has a minimum of €1000 to start and €100 for additional contributions. It's mostly invested in the United States, 12% in French companies and 7% in Chinese companies. In the United States... 75%. The average annual return is 7.50%. 54% of this was created in 2020, but Maria was, of course, conservative in her calculations. I'll assume a 6% annual return, because six years of data is very little, so let's lower it a bit more and I prefer to have a lower estimate and be surprised on the upside. The big catch is not the 1.45% annual charge rate. If the fund yields 6%, she ends up with 4.55% net. The simulation results were as follows: Maria used a compound interest calculator to do the calculations. At age 35, after investing for 10 years, she had €33,293. At age 50, after 25 years of investing, €109,610. At age 60 , at the end of her journey, €193,660. Wait, Maria thought, but I still have to pay taxes because the The state takes everything from me. Since you'll be keeping the PPR (Personal Retirement Plan) for more than 8 years, you only pay 8.6% tax on the profits. The total investment was €75,500, including, of course, those tax benefits. The profit was €118,166. Taxes payable €10,162. Therefore, the final net value was €183,504. Maria did the math. So, I only invested €63,250 from my own pocket for 35 years and ended up with €183,504. Well, not bad at all. But then she thought, what if I had invested the same money, but somewhere else, would it really have paid off? After all this research, Maria came to a conclusion. PPRs aren't magic, but they 're not a scam either. What works well? The 20% guaranteed return in the first year is real. Lower taxes in the long term, 8.6% compared to 28 or 19%. It forces you to save for retirement. The money will be locked in. It can also be an advantage because it will force you not to withdraw it. What's not so good? First, management costs can eat up a good portion of your profits, and then there's the lack of flexibility, because the money becomes practically inaccessible and past returns don't guarantee future returns, of course. After this whole experience, Maria left some tips for those thinking about investing in PPRs (Personal Retirement Plans). Tip number one: if you are married, each spouse should have their own PPR. Then combine them on your tax return and both benefit. Tip number two: if you want to invest more than the maximum limit for tax benefits, for example, more than €2,000 at age 25, invest in a different PPR as well. This way you can withdraw that extra money without losing the tax benefits of the first one. Tip number three: always read the terms and conditions before signing, as each PPR has its own very specific rules. So, is it worth investing in PPRs (Portuguese retirement savings plans)? Maria's retirement depends on your profile. It makes sense if you're under 45, won't need the money before 60, want a more comfortable retirement, and like the 20% guaranteed return. It doesn't make sense if you might need the money for emergencies, prefer total flexibility in your investments, and think there are better alternatives like ETFs. Maria decided to invest, but only enough to take advantage of the tax benefits. The rest of the money goes into more flexible investments, because the truth is that PPRs are just one piece of the puzzle. There are other options that might make more sense for you, such as ETFs, stocks, or even real estate. If you want a complete comparison between PPRs and ETFs with 30-year simulations and the definitive answer on which one is more worthwhile, we have exactly that video. Click here and see that the difference can be more than €240,000. M.