Choosing when to retire is one of the most important decisions in a working life. When deciding the month to take the leap into retirement, personal circumstances matter, but finances do too. A key indicator used to determine the best moment is the Consumer Price Index, or CPI, because it directly influences how pensions are adjusted.
The CPI tracks changes in the prices of essential goods and services over time and serves as a primary mechanism for adjusting pensions. Each year, pensions are revalued according to the inflation rate of the preceding year. As of November 2024, that rate was 2.8 percent, and it sets the level by which contributory pensions will increase starting January 1, 2025.
How to Calculate Your Pension
One may retire at age 66 years and six months if the individual has fewer than 38 years of contributions, or at age 65 if contributions exceed 38 years. Registration with Social Security is required, and at least 15 years of contributions are necessary, two of them prior to the retirement event.
To calculate the pension, the reference is the sum of the contribution bases over the last 25 years, divided by 350. The resulting figure represents the regulatory base to which specific percentages are applied. If one aims to receive 100 percent of the regulatory base in 2024, the requirement is 36 years and six months of contributions.
Although the ideal retirement moment depends on many personal factors, those prioritizing real-purchasing-power pensions should note that the final months of the year offer advantages. November and December often provide the most favorable alignment with the latest inflation adjustments, maximizing real benefits.
Contribution bases should reflect CPI updates, and this index tends to be higher in the second half of the year, especially in November and December. The Caixabank Ruta 67 blog has highlighted this pattern. Consequently, a higher inflation rate translates into a larger pension amount, all else equal. Source: CaixaBank Ruta 67.
One common question is whether retiring at the end of the year will cause the pension to rise in January along with other pensions. The answer is yes, a point that many retirees consider in their planning.
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Pension Simulator
All pension calculations are highly personal, influenced by many individual and financial factors. For that reason, the Social Security administration offers a pension simulator that can show the estimated date of access to this benefit and its likely amount.