Retirement in Brazil: A Guide for Young Investors

Retirement in Brazil: What Young People Need to Know

Imagine yourself, at 65 years old , looking back and wondering if you did everything right to live with financial security. Can we count on the INSS alone ? This question is not an exaggeration: experts warn that the public pension system faces serious challenges. Today, many young people barely think about retirement (in 2019, only 25% expressed concern about it), but with increasingly strict rules and increasing minimum ages, this lack of concern can cost you dearly. It's like planting a tree and only taking care of it when it bears fruit – too early to get complacent.

The illusion of retirement guaranteed by the INSS

For a long time, the INSS was seen as an automatic “life insurance” for Brazilians. The common belief is: pay your contributions and, in the future, the government will guarantee your livelihood. In practice, however, this view is a trap . Social Security suffers from a growing deficit: the total amount collected barely covers current payments and, without reforms, the accounts will not close. Recent projections show that, if nothing changes, the deficit could quadruple in the next 75 years – the bill will be heavy for those who come after.

Furthermore, the aging population and the growing informality are increasingly taking a toll. As Iracema Socorro de Lima (FECAP) explains, more people living to older ages means greater pressure on the INSS’s coffers. Today, the rules have become strict: in the general system, a woman can only retire if she is at least 62 years old and has contributed for 15 years , and a man can only retire if she is 65 years old and has contributed for 20 years . It is no wonder that many young people do not even complete these stages – just think of the gaps in employment, career changes or periods in which they are still studying or working informally.

Another point is that being young today does not open up alternative paths to the INSS. There is no “special package” for those who are 25 or 30 years old: the same requirements apply to everyone. Therefore, professionals recommend that those who are self-employed or in informal jobs start contributing as optional insured early on, guaranteeing at least a basic right in the future. But even this does not solve everything: even regular contributors can receive a low retirement pension, often limited by the national minimum wage. Therefore, counting only on the INSS is an illusion . As the popular saying goes, “there is no such thing as a free lunch” – if you don’t plant anything today, don’t expect to reap much in the future.

Private Pension: is it worth it?

Given this scenario, many people turn to private pension plans (PGBL/VGBL) to supplement their future. In fact, these plans offer some advantages – for example, with PGBL you can deduct up to 12% of your annual taxable income when filing your income tax return, postponing the tax until withdrawal. VGBL , on the other hand, does not allow deductions, but only taxes the income at the time of withdrawal. In simple terms: PGBL accumulates tax on the entire balance (principal + interest), while VGBL only charges tax on the profit obtained.

But be careful: it’s not always worth it . These plans usually have higher-than-average administration fees – this is how the insurer makes money – and may charge a performance fee and even a loading fee (on deposits or withdrawals). In other words, part of your earnings are “eaten up” by the fees. In addition, the money is tied to the contract for decades; withdrawing it early may mean penalties (lower balance). Another catch is taxation: if you don’t have much income today, the tax benefit of the PGBL is small, and in the future the tax will be levied on the entire accumulated amount.

Therefore, private pension plans are only worthwhile in specific cases . They are recommended for those who have a high income and pay a lot of income tax, as they can take advantage of the PGBL deduction. Even so, it is important to remember that these plans are basically disguised investment funds, with minimum values ​​and their own rules. Before signing up, compare the net profitability (after deducting fees) with that of other investments – there is no point in opening an expensive plan thinking it is safe, only to find out that you have lost money due to high fees. In short: private pension plans can help you create discipline in your contributions, but don't be fooled into thinking that they are a miracle solution.

Investing on your own: building your portfolio

One alternative is to be your own financial planner. Instead of handing over your future to banks or the government, you decide where to invest your money. To do this, it is worth diversifying: part in safe fixed-income assets (such as Treasury Bonds or CDBs), part in variable income (stocks, ETFs and real estate funds). A practical example is ETFs (Exchange Traded Funds). They allow you to invest in a basket of stocks (in Brazil or abroad) paying low fees. Thus, even with a small monthly amount, you can participate in several sectors of the economy. According to experts, ETFs guarantee efficient allocation and broad diversification – everything essential for those who want to accumulate wealth for retirement. In addition, you can adjust your portfolio over the years: buy more when the price drops, sell if a fund does not perform well, etc.

Other strategies also play a role in this long-term game. Stocks in solid companies (which pay good dividends) are a classic way to generate future income – the proceeds can be reinvested to boost your wealth. Leandro Lopes, from Septem Capital, reminds us that dividends are not a “gift”: they are part of the profitability and, when reinvested, help to accumulate more and more capital. When you reach the enjoyment phase (de facto retirement), these dividends will serve as a regular “salary”. Real estate funds (FIIs) are another option for passive income: each share represents a fraction of rented buildings, paying monthly dividends (exempt from income tax for individuals). They allow you to start with smaller investments (a few hundred reais) and also provide income tax exemption. On the other hand, they have risks specific to the real estate market (vacancy, late payment of rent, etc.), so they also require care.

Ultimately, each asset has its pros and cons. ETFs facilitate automatic diversification, but charge management fees. Direct shares can bring high returns and exemption from income tax on dividends, but require knowledge and patience to choose good stocks. FIIs provide easy regular income, but are subject to the economy. The experts' tip is precisely to diversify : mix fixed income, variable income, FIIs and ETFs according to your profile. And remember: the younger you are, the larger the share in variable income can be (greater risk, but also greater potential return); as retirement approaches, increase conservative investments to preserve what you have accumulated.

The Role of Time: Compound Interest, Discipline, and Consistency

The great secret of wealth for those who start early is time . Over the years, compound interest – earning interest on interest – makes your wealth grow like a snowball. To give you an idea of ​​the impact: Suze Orman calculates that a 25-year-old who invests R$565 per month (approx. US$100) at a rate of 12% per year can accumulate around R$6.7 million by the age of 65. If they start only at 35, this amount drops to ~R$2 million – almost R$4.8 million less just by waiting ten years! Even with a more conservative return (6% per year), R$565 invested per month at age 25 will generate around R$1 million at age 65 – double what someone who started at age 35 would accumulate. It is the perfect illustration of the “the sooner, the better” effect.

This “magic” only works if you start now and don’t stop . The discipline of making regular contributions, even if small, is crucial. There’s no point in putting money in savings and forgetting about it, while in other months it’s spent on unnecessary things. As Orman warns, spending too much now on vanities or raising your standard of living as you earn more (known as lifestyle creep ) can completely eliminate long-term gains. Instead, imagine every penny spent less today as another brick building your future security. Every salary increase or extra job should be seen as an opportunity to strengthen your retirement.

Practical comparisons: simulations of contributions, profitability and time

To make it even clearer, see some simulated examples (values ​​for illustration purposes only):

• Simulation 1: A person starts investing R$300 per month at age 25, with an average return of 8% per year. In 40 years (at age 65), he or she would accumulate something around R$1.6 million (before taxes). This amount, applied to interest or used for income, would allow for a comfortable retirement well above the minimum wage.

• Simulation 2: If this same person started at age 35, investing the same R$300 per month at 8%, in 30 years (at age 65) he would only have around R$700,000 . In other words, he would lose almost R$1 million by postponing the start.

• Simulation 3: Returning to Suze Orman's example – R$565 monthly at 12% – starting at 25 gives ~R$6.7 million, while at 35 it gives ~R$2 million. And at 6% per year, at 25 it yields ~R$1 million at 65, compared to R$500 thousand for those who start at 35.

Now compare this with the INSS: even those who contribute for 35 years and reach the contribution ceiling today (approx. R$8,157.41/month in 2025) receive this gross amount; in practice, most earn much less (the average salary of workers is much lower). In no case will this amount adjusted for inflation provide returns like that of a well-assembled portfolio. Furthermore, the financial market offers opportunities to earn more than 8% per year in a diversified portfolio – something that the INSS does not provide.

In short, how many retirement cows does each strategy create before you stop working? The INSS alone tends to guarantee a “salary” limited by the average of your contributions, which is often insufficient. The right investments, on the other hand, can multiply your assets, giving you much more financial freedom in retirement.

Take control of your future

It is obvious that, nowadays, we cannot pretend that everything is guaranteed . Relying only on the INSS is risking having a difficult future. But it is also not enough to go out and make investments blindly or fall for the lies of private pension sellers. The key is to plan : understand your risk profile, study the basics of investments and start with what you have – even R$100 per month is better than nothing. Analyze and compare: PGBL/VGBL plans, government bonds, CDB, stocks, ETFs, FIIs, etc., choosing the mix that makes sense.

Remember: time is only on your side if you act today . Every month that goes by without saving is lost purchasing power in the future. As the saying goes, “The best day to plant a tree was yesterday; the second best is today.” So don’t put it off any longer. Think about it now : what will you do tomorrow at age 65? And more importantly, what will you start doing today to get there without any hassle?

Finally, take concrete action: open an account with a brokerage firm, set up automatic investments, or seek out a trusted specialist. Set goals, even if they are modest. And remember: every dollar invested early yields much more later. You’ve already taken the first step: get informed. Now, take the next step: start taking action and put your retirement plans into practice today. Your 65-year-old self will thank you!

References: Information and data cited in this text were obtained from reliable sources on social security and finance, including studies by experts and economic newspapers fecap.br, infomoney.com.br, terra.com.br, einvestidor.estadao.com.br, gauchazh.clicrbs.com.br, terra.com.br.