According to the OECD’s report “Pensions at a Glance”, pensions in Luxembourg are much higher than the average, especially compared to our neighbouring countries. Nevertheless, you could still see a noticeable drop in your income when you retire (depending on your situation), especially if you haven’t prepared to offset this inevitable change. It’s best to take action now.
Young professionals generally have other things on their mind than planning for retirement – their significant other, career, children, limited finances, etc. However, with an average drop in income of 22% after you retire, you’ll need to start preparing today if you intend to make the most of it when the time comes – especially as there is no guarantee that Luxembourg can maintain the same level of pension benefits 20 or 30 years from now. What should you do?
Prepare your documents
The best way to have more is to not have less! To receive the full amount of your state pension, you must be able to provide proof of your compulsory insurance periods (professional activity, periods of unemployment, parental leave and baby years, etc.) and equivalent insurance periods (education and professional training between 18 and 27, child-rearing years for children under 6 years, etc.).
You should therefore start putting together a folder containing all your documentation, rather than waiting another 30 years to realise that you are missing a number of irretrievable documents.
Build your savings
Faced with rising life expectancy and concerns about whether the government can maintain the current level of state pensions, young professionals are becoming increasingly aware they themselves have to take the initiative in properly preparing for retirement. Your savings are a crucial part of this.
It doesn’t matter if you can only put aside a limited amount of money. Over the course of several decades, the small amounts put aside each year will become a comfortable nest egg for the future. The key is to start saving now. Nevertheless, it is important to keep your savings easily accessible if you want to stay flexible enough to achieve your short-term goals. Saving for tomorrow doesn’t mean you can’t enjoy today!
Become the owner of your main residence
Home ownership is an important step towards planning for retirement. If you take out your loan early enough, this investment means you won’t have any repayments to make or rent to pay when your income decreases upon retirement.
If you take out your loan early enough, this investment means you won’t have any repayments to make or rent to pay when your income decreases upon retirement.
Of course, house prices are high and it’s not always easy to get the desired credit, especially as a deposit is often required by the bank. However, the good news is that interest rates (including fixed rates) are particularly low at the moment, and if you’ve followed the advice on savings you’ll have already built a little capital!
Whatever the case, you can simulate your mortgage loan today to estimate your borrowing capacity and discuss it with your banker. He is at your disposal to answer any questions and help you finance your property purchase.
Make the most of supplementary pension plans
In addition to your state pension, Luxembourg legislation contains measures designed to encourage the use of occupational (second pillar) or personal retirement savings plans (third pillar).
If your employer has set up a supplementary pension plan, you can top this up by paying into it yourself and deduct up to EUR1,200 of these payments from your taxes each year as special expenses. When you collect your pension, the benefits are paid out in the form of a lump sum or monthly annuity that is exempt from income tax in Luxembourg. The contributions are taxed at source by the employer at a flat rate of 20%.
The tax reform provides for an annual allowance of EUR3,200 for retirement savings schemes, regardless of your age.
The tax reform that entered into force on 1 January 2017 provides for an annual allowance of EUR3,200 for retirement savings schemes (Article 111bis of the LIR), regardless of your age. When you retire (no earlier than 60 years old), you will receive a monthly annuity where 50% is tax-exempt, the full amount as a lump sum taxed at half the overall rate, or a combination of the two (50/50). For more information, please contact your bank or insurance company.
Between insurance products, investment funds and structured products, there is a wide range of investment options to help you build capital and guarantee a high standard of living once you retire. These don’t necessarily require an astronomical sum of money.
As everyone’s situation is unique, we recommend that you get in touch with your bank to discuss your investment profile, as well as the opportunities and risks inherent to your intended investments. Never forget that the delivered information should always be considered based on your personal situation and may change with the legislation.