As you know, with an ageing population, the pension system in Luxembourg is likely to become less generous in the coming years. Even more reason to prepare yourself as soon as possible for the challenge of declining resources.
When it comes to pensions, Luxembourg isn’t a bad place to be compared with its European neighbours, as the average loss of income is lower. According to the Organisation for Economic Co-operation and Development (OECD), for a person whose average salary during his or her career exceeded national averages by 50%, the gross replacement rate is 72.5% in Luxembourg.
To find out more about how it works, see our article on How to calculate your retirement in Luxembourg.
With retirement savings that evolve with you: simple, secure and flexible.
However, according to the projections of the European Commission, in order to maintain the national old-age dependency ratio at 2020 levels in 2040, the retirement age would have to be raised to 72 in Luxembourg (from 65 today).
It is too early to say whether this option will be chosen. But there is a good chance that the amount of money paid in will be reduced.
By putting in place a savings and investment strategy that is consistent with your age and profile, you can compensate for this drop in income when the time comes to retire.
At 30, the most important thing is to have savings that will allow you to achieve some of your life goals: accept a professional opportunity, finance a big trip, organise a wedding or build up a deposit to buy property. The easiest way to do this is to schedule regular payments into a life insurance policy. This means that your savings remain available at all times to deal with life’s knocks (minus the tax, of course).
As soon as your professional and financial situation allows, buying your own home is an essential step towards preparing for your retirement. By buying in your thirties, the property is likely to be paid off by the time you retire, freeing you from financial worries and providing a good foundation for your retirement.
Finally, if you still have some money available, rather than keeping it in a savings account with a very low interest rate, you can start preparing for your retirement now while enjoying a tax deduction.
40 is a pivotal age for retirement savings. If you haven't already done so, it is advisable to build up your capital quickly.
The good news is that the Luxembourg government encourages you to set up a pension plan by offering a maximum tax deduction of €3,200 per year per person (Article 111bis L.I.R.).
How do you choose your supplementary pension savings? Determining your risk profile is a good starting point.
Once you reach retirement age, you can choose how to receive your capital in a number of ways:
• a lump sum payment;
• conversion of your capital into monthly life annuities;
• withdrawals;
• or a combination of these options.
This is usually a good time to boost your savings: you often have a more comfortable income and more than 10 years of working life left before you retire.
Investment funds, structured products, life insurance - there are many ways to make your capital grow, without necessarily committing large sums. Don’t hesitate to discuss this with one of our advisors.
If you haven't already done so, subscribe to a pension product and increase your payments up to the €3,200 limit per year.
Finally, it is important to consider your life after work to prepare yourself psychologically. What will you want to spend more time on? Family, hobbies, voluntary work, travel... When you retire, you will be free to do whatever you like with your free time! Do you find it difficult to imagine yourself in that position? Did you know that there are training courses to steer you towards the end of your professional career with peace of mind so that you can throw yourself enthusiastically into this new phase of your life.
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