Dean of the College of Economists of Lima: If you are over 50 and your AFP fund is small, it is better that you withdraw it

The withdrawal of the AFP has generated great expectations among citizens, since, after the approval in the Congress Plenary, the exceptional disbursement of up to 4 UIT was authorized, which is equivalent to S/20,600. Along these lines, many people seek to know how they could use their funds, whether to pay debts, buy goods or services, or simply use them for recreational activities. What to do in that context?

José Herrera, dean of the College of Economists of Lima, offered some insights in this regard. He highlighted the importance of thinking in the long term to determine the usefulness that this money would have, if one chooses to withdraw retirement funds.

—What is your opinion on the recent approval of the AFP withdrawal approved in the Plenary?

—Mention that the authorities, whether Congress or any economic political measure pending the availability of funds to the public, have as their main objective mobilizing resources so that they are available and spent, in one way or another, in order to give economic dynamism to the country. That means that people buy, people move, people move the economy. From a political and economic perspective, this measure works as support and helps reactivate the economy. In addition, it has a political objective on the part of Congress to respond to the current needs of members. However, it is important to handle this issue with caution, since these are special pension and long-term funds.

—What do you recommend to members who think about withdrawing their funds from the AFP?

—As dean of the College of Economists of Lima, I would recommend to members who receive their funds (to withdraw) only if they have a real need for money. What does it mean? If they are sick, for example, they can withdraw their money and take care of their health. If they are unemployed, they can also withdraw their employment to make the best use of their money. If they have debts, for example, those that are medium and long term, they usually pay high interest and the recommendation is to pay them, especially by shortening the terms. Pay credit card debt, mortgage debt or calculate the highest interest, and reduce the burden for members.

If you are a member between 30 and 50 or 20 and 60, you can also use your money to professionalize yourself, for example, a master’s degree or diplomas that allow you to enter the job market and be able to obtain a better income in the coming months or in the future. That would be a good investment.

On the other hand, if you are a member between 50 years of age and older and your fund is small, we recommend that you withdraw it and make the best use of it, because, if your fund is small, it is very likely that your pensions will be tiny, so, It is better for you to have your money to put it to the best use, considering the recommendations I just gave.

—How to use AFP money to generate additional income?

—I would also recommend withdrawing them if you have real possibilities of investing and placing it, or running a business. If you have a (company) that is doing well, you can use it to increase capital. If you know or get advice to invest, also to secure your fund.

If you would like to place it (your fund), the recommendation is to put it long-term in mutual funds, with controlled interests in financial institutions, the same as long-term, always considering that those interest rates that are higher than what the insurance system itself offers you. Pensions, depending on the risk level of your funds, have a level of profitability.

It is prohibited to withdraw your funds to spend it on the vanities of life, on trips, in situations of that nature. We do not recommend having your funds available so that you then waste them and have problems in the future. Now, if you are not clear about it, you do not have needs or you do not have business, do not remove it, leave it there quietly.

—If a person has less than 4 UIT, is it advisable to withdraw?

—If they are 50 years old or older, yes, remove it. But, if you are young, don’t worry, there is no need because when you are young the fund is made from scratch and it grows, so take it easy. Because there is money to be had, it must be spent, in no way.

Another way, for example, someone who is risk-averse says ‘hey, I have some money.’ I would like to have it in case something happens because in AFP I cannot dispose of it, or withdraw it, but again you deposit it in the form of endless pension savings deposit in the AFP itself. So, put it in a fund with the risk level of your preference and have it for when you really need it, because it could be withdrawn.

Most Peruvians do not have a savings culture. Money in our hands, money we spend. You have to be careful in a responsible way, look in the long term, because time passes quickly, your time comes and we are going to reach older adults and we are going to say, where are my pensions?, and the question is how much have you managed to accumulate? so that your pensions are high.

This Friday the 12th ends the Economist’s Week, in the Hall of Degrees of the Faculty of Economic Sciences of the Universidad Nacional Mayor de San Marcos (UNMSM). During this period, talks and conferences were held. The main topic is the “economic reactivation of Peru.”