The end of the year is approaching, and that means only 1 thing (okay, okay, it means a lot more, but in the context of “smart money conscious ladies,” it means mostly what we’re going to talk about now): fill your retirement gap. Say what! Yeah, we’re going to talk about that in a minute. But this is something you need to be keen on now, just as you will undoubtedly spend the end of the year figuring out your health insurance, perhaps switching energy providers and looking at your finances at all.
So, in this context: go calculate your pension gap and annual margin. And take action. Is your future granny happy.
Tell me, how does retirement investing work?
When it comes to your retirement, the Netherlands has 3 pillars:
- AOW pension. This is our beautiful social system, and we all get AOW.
- Collective Retirement. This is the pension you accrue when you are employed.
- Supplementary pension. Here’s what you can do yourself that will help you close your retirement gap.
Why retirement investing versus retirement savings?
Simple, because of the so-called compound interest effect. Because you can make an average return of 8% with investing versus 0% on savings today, you end up needing less deposit to arrive at the same final amount. This is the whole trick of investing at all, and thus also of retirement investing.
Pension gap?
The government has a maxim that our pension should be the amount of 70% of our average income. However, most people only build up 40%/50%. That means that if you stop working, you will receive a pension that is half as much as you earned on average in your lifetime. That’s a substantial step backwards! So supplement that pension. And you can do that yourself, whether you are salaried or self-employed. How much you should accumulate in retirement depends on the income you have now and how much you need to live on.
Note! So retirement investing means, it’s in the name darlings, that you invest your money and that involves risk.
Annual space
To supplement your pension, so as not to experience such a harsh drop in income in the future, you can deposit a maximum amount in pillar 3 each year. Yes, there is a cap on this, and this has to do with our friends at the Internal Revenue Service. This is like this: when you start investing for retirement, the government helps you by making it very attractive fiscally. Much of the money you deposit into your retirement account will be returned to you by the Internal Revenue Service. It works pretty much the same as with mortgage rates. On the retirement income later, you pay (hopefully a substantially lower) income tax.
Tip: You can use an easy tool from Brand New Day to calculate how much extra annual margin you have, how much money you can put into your retirement account, and where you can therefore get a nice tax break.
Reservation space
Another term. Forget about him quickly. Of course after you do something clever with it! Anyway, now what if you have been accruing too little pension for a long time and never used your annual allowance? Could be just like that. That’s a shame. But the Inland Revenue is fortunately not the lousy one in this case. In fact, you can still benefit from your annual margin from the past 10 (!) years. This sum of annual space is called your reserve space. So if you accrued too little pension in the past, you can rectify that (partially) very inexpensively by using your reserve space.
Get started!
So calculate out that pension gap, see what your free annual allowance is and if you have the means invest this money like mad in your retirement investment account. Of course, there are still a few things you need to do to do that, nothing comes easy: calculate your annual margin (from the past ten years), open a special account, deposit money and claim the money back during your next tax return.
Where to invest in retirement?
There are several parties where you can make retirement investments. Think Semmie, A.S.R., Brand New Day, Bright Pension and Degiro. Which party you choose depends on your needs and preferences. There are a number of aspects you need to pay close attention to when choosing a retirement investment party. In particular, whether this partije is supervised by the DNB and AFM, well smart. In addition, you want retirement investments in a dedicated retirement account, not a regular investment account. Because of that tax advantage! Also, it is smart to take a look at the cost of each party, because the higher the cost, the bigger the bite on your assets. Want to avoid a little, duh.
