How to manage retirement wealth

Managing retirement wealth can be daunting. Not only are large sums of money involved, but it may have to last 20 or 30 years, with in most cases no possibility of replenishing it. This means the stakes are high, and mistakes costly – all decisions must be considered carefully.

Your initial decision-making should focus on the type of retirement you want. It is difficult to start making calculations on how to manage retirement savings without a clear idea of the income you will need. With that in mind, start by making a loose list of aspirations. Do you want to travel? Will you downsize? Do you want to retire abroad? What are your red lines in terms of living standards?

You should also look at your basic expenses. Do you still have dependent children or grandchildren, for example? A mortgage loan on your home or other debts? You should examine day-to-day costs such as running a car, internet access, holidays, subscriptions and utility bills – and factor in inflation over time. Your state of health may also be an important consideration.

Continuing to work?

Once you have an idea of the level of income you are likely to need, and for how long, you can start to look at how you might generate that income. While a large part of your retirement income may come from state, employer and personal pensions, you should take into account all the resources available to you when devising a strategy for retirement wealth.

While a large part of your retirement income may come from state, employer and personal pensions, you should take into account all the resources available to you when devising a strategy for retirement wealth.

Downsizing your home, for example, could release a significant lump sum, which can be invested to create an additional income stream. You may have savings, or be expecting an inheritance. All of these assets can be part of your wealth strategy in retirement.

You should also consider whether you want to continue some paid work in retirement, although doing so full-time remains relatedly rare in Luxembourg, limited to around 10% of the newly-retired population. However, many people are keen to remain active in some way, and may take on consultancy positions or even launch a small business.

This can help defer the point at which you need to access all or part of your pension income (although there is no financial benefit to deferring receipt of a Luxembourg state pension beyond the age of 65), which in turn may mean the income will be higher when you do start receiving it. Retirement income products such as annuities also factor in your age when calculating the level of income you can expect.

Key financial decisions

The state pension in Luxembourg is generous. Anyone can draw a retirement pension in Luxembourg as long as they are at least 65 years of age and can demonstrate that they have made at least 120 months’ worth of insurance contributions.

However, the actual amount depends on the level of your contributions: the maximum monthly pension payment in 2025 was €10,618.30, while the minimum was €2,293.55 for a person who had made contributions for 40 years. Pension payments are index-linked, so retirees should not find their purchasing power eroded by inflation if they continue to live in Luxembourg.

You may also have a pension from your employer. Defined benefit schemes that offer a guaranteed proportion of your salary for the rest of your life, are becoming extremely rare. They have been progressively replaced by defined contribution schemes, under which the income you receive in retirement depends on the level of contribution from you and your employer, and how the underlying investments have performed. Many individuals also have defined contribution personal pensions.

You have some flexibility on how you use the benefits from a defined contribution employer scheme or personal pension schemes on retirement. You benefit either from a refund in the form of a monthly payments exempted at 50%, or from the full payment of the capital, or from an intermediate solution combining capital repayment and monthly payments. Lump sum payments from personal pensions are considered extraordinary income and are taxable at half your normal personal income rate. From the 2022 tax year, savings accumulated upon maturity of the policy can also be withdrawn in annual lump-sum payments up to the age of 75.

Keeping cash indefinitely in a saving account paying relatively low rates of interest may not prove a good choice.

There is no obligation to take a lump sum, but if you do, it is important to have a plan for how to use it. Keeping it indefinitely in a saving account paying relatively low rates of interest may not prove a good choice.

Drawdown or annuity?

You will need to decide whether to opt for a drawdown product, where the money is kept invested, or an annuity product, where you receive a guaranteed income for life in exchange for handing over the capital. Those who can anticipate spending 20 or 30 years in retirement may prefer to continue to keep their assets invested because they have longer to ride out any volatility and may regard the inflation protection it can provide as more important.

In making this decision, inheritance may also be an important consideration. If you have plenty of guaranteed income from elsewhere (including the state pension), you might prefer to keep a larger proportion of your pension assets invested, in the hope that enough will be left at your death to leave to your heirs.

How much income variability?

The amount of income you receive from other sources, such as buy-to-let real estate or savings, will also influence your decision-making. If you have guaranteed income from elsewhere, it may enable you to tolerate greater variability in the level of your income and take increased risk with your retirement wealth. In addition, if you believe your retirement needs will vary over time – high in early retirement for example, but declining later on – you may want to benefit from flexibility.

A lot will also depend on how involved you want to be with your finances over the long term.

A lot will also depend on how involved you want to be with your finances over the long term. Keeping money in stock market investments is inevitably more demanding than simply buying an annuity. You need to ensure that your investments remain suitable for your needs and long-term, strategy, incorporating the right level of risk. You will need to review them reasonably regularly, and you are likely to have to consult an adviser. If this sounds like too much hard work, then you may be better off with an annuity.

The decisions you make at retirement are among the most important financial choices you will ever make. It is worth planning well in advance, and thinking hard about the lifestyle you want – and it can be a time where financial advice is highly valuable.