As life expectancy increases, planning for your retirement becomes ever more important. Pension plans remain the most popular way to do so; With this in mind, I wanted to bring you these tips for pension planning inspired by an article found on eZonomics. that’s why we decided to share some tips on how to make the most of your retirement savings.
1. The early bird catches the worm.
Our first tip might sound simple, but it makes all the difference: start early! Starting your pension fund as a young professional means that you’ll amass a considerable savings amount as well as reap the benefits of compound interest. Just consider the following example: a 30-year-old putting away €1,000 a year into a pension account earning 5% annual interest will have accumulated €71,000 by the time he/she reaches 60 (if the funds are left untouched). In comparison, a person who waits until the age of 45 to save for retirement has to put aside €3,000 a year (under the same investment conditions) to gather the same amount by the time they turn 60.
2. The power of habit.
To build a nest egg that will allow you to live comfortably once you’re retired, you should not only start early enough but also keep at it! Most people find it easier to make small contributions on a regular basis than to deposit big chunks of money every once in a while. Turning saving into a habit is a sure way to get you results in the long run.
3. Thanks, boss!
Some employers contribute to their workers’ retirement funds by matching their savings. Make sure you’re not missing out on these employee benefits as it is basically free money!
4. Make pension saving less ‘taxing’.
Most governments offer tax advantages to citizens who make regular deposits into designated retirement accounts. In Luxembourg, taxpayers who have concluded a pension contract with a financial institution can deduct their contributions from their tax burden. You can deduct up to €1,200 annually. If you have any doubts, you can always visit www.guichet.lu.
5. Hands off!
While some pension plans allow you to dip into your savings, it’s best to leave your pension account alone. Withdrawing money reduces both your reserves and the earned interest.
6. Forget-me-not
While setting up a pension account is a great first step, it doesn’t stop there. To make the most of your savings, you should review your pension scheme on a regular basis. Have your needs and plans for the future changed? If so, is your retirement plan still in line with your goals? It’s always a good idea to take a step back and re-evaluate your monthly or yearly contributions, the fees you’re paying as well as the risk profile of your investments.
7. Is your retirement plan right for you?
There is no one-size-fits-all solution to pension saving. How much money you will actually need once you’re retired depends heavily on the kind of life you envision yourself leading after leaving work. For instance, if you want to spend the majority of your time at home close to your family and friends, you’ll need less funds then if you plan to travel the world when you retire. As you approach retirement age, it’s useful to calculate your annual expected income from your state and private pension and see how they fit your plans for the future.
