Managing a Decline in Income During Retirement: Our Solutions for Dealing with It
With a foreseeable decline in income upon retirement, it is essential to start planning now to maintain your standard of living. According to CNCEF Patrimoine, there are several steps and savings strategies you can take to plan for and supplement your future income. Here are the key points to keep in mind for optimal preparation.
1. Assessing Your Future Income: A Crucial Step
First and foremost, it is essential to accurately estimate the income you will have in retirement. To do this, regularly check your Individual Account Statement (RIS), available on the Pension Insurance website. This document, which is often prone to errors (missing quarters, incorrect wages, periods of unemployment not included), must be verified and corrected if necessary by providing proof of contributions.
For those with multiple employment statuses (employee, civil servant, self-employed professional), professional assistance—such as that provided by a wealth management advisor—can be invaluable in consolidating information from multiple pension funds.
2. Preparing for a Decline in Income: Tailored Savings Solutions
The average replacement rate varies significantly depending on employment status: from 75% for non-executives to just 53% for executives. This substantial decrease makes it essential to start saving as early as possible. Here are a few recommended strategies:
• Become a homeowner: No longer having to pay rent is a major advantage for reducing fixed expenses in retirement.
• Invest in rental real estate: despite fluctuating market conditions, this can provide a stable source of supplemental income through rent or resale. The property tax loss can also be used to offset the cost of renovations.
• Purchase life insurance: ideally before age 70, this investment allows you to have access to liquidity while passing on capital of up to €152,500 free of inheritance tax.
• Contribute to a Retirement Savings Plan (PER): Contributions are deductible from taxable income, with a favorable annual limit. The funds can be converted into an annuity or a lump sum upon retirement.
3. Diversify Your Investments Based on Your Time Horizon
Diversification is essential for balancing returns and security. Several options are available depending on when you start saving:
• Long-term: Focus on growth-oriented investments such as target-date funds or stocks in a PER to maximize capital growth.
• Short term (as you approach retirement): Opt for secure investment vehicles, such as euro-denominated funds or purchasing additional retirement quarters, to increase your pension.
4. Restructuring Your Retirement Savings
Retirement marks a turning point in wealth management:
• Reduce your locked-in investments to maintain accessible liquidity.
• Consider transferring or liquidating part of your employer-sponsored savings plan to avoid unnecessary management fees after retirement.
• Prepare to pass on your investments, taking their tax implications into account to maximize benefits for your heirs.
Planning for retirement requires a thorough analysis of your future income, a diversified savings strategy, and a well-thought-out restructuring of your investments. The earlier you start, the more you can maximize your chances of offsetting the decline in income and ensuring a comfortable standard of living in the long term.
