Our Tips for Choosing a Retirement Savings Plan (PER)
The Retirement Savings Plan (PER) has become an essential tool for retirement planning, thanks to its flexibility and tax benefits. However, signing up for it requires careful consideration to avoid mistakes that could jeopardize your long-term financial goals. Here are our tips.
In 2023, more than 117,000 French people signed up for retirement savings plans (PERs), contributing a total of 14.4 billion euros. This program, prized for its benefits, has become an essential tool for planning for retirement. To get the most out of it, it’s crucial to think carefully before signing up. Here are the four main tips for maximizing the effectiveness of your individual PER.
1. Review the fees and performance of investment vehicles
When opening a PER account, it is essential to check the fees associated with the contract. These fees may include:
• Annual management fees: from 0.50% to 1.00% per year, depending on the contract
• Deposit fees: from 0% for online contracts to 5%
• Arbitration fees
These expenses, although seemingly minor, can add up and significantly reduce the returns on your retirement savings. It’s also important to closely examine the performance of your investment vehicles. Compare the performance of your euro-denominated fund to the market average, and evaluate the historical returns of various investment vehicles, such as equity, bond, and real estate funds.
2. Compare market offerings
Individual PERs are offered by various providers: banks, insurance companies, and online brokers. Each offering has specific characteristics in terms of fees, investment vehicles, performance, and services. If you don’t take the time to compare them, you may miss out on an offering that’s better suited to your profile and goals. Before making your choice, compare the options by considering:
• Fees: Compare management fees, contribution fees, and other potential costs across different plans.
• Investment options: Evaluate the diversity, quality, and performance of the investment vehicles offered by each plan.
• Consumer reviews: Feedback from other policyholders can be a valuable source of information for assessing overall satisfaction with the plan’s management and performance.
3. Tailor Your Investment to Your Investor Profile
The individual PER offers a wide range of investment vehicles, from the safest to the riskiest. Diversification is essential when managing a PER because it helps spread risk and optimize your long-term return potential. However, this diversification must align with your investor profile. Failing to tailor your investment choices to your profile may result in taking on risks you are not prepared to accept. Choose investment vehicles that align with your investment horizon and risk tolerance.
4. Fully understand the tax benefit upon contribution and the tax impact upon withdrawal
One of the main attractions of the PER is the tax benefit it offers when making contributions, which reduces income tax. However, this tax benefit upon contribution is accompanied by taxation upon withdrawal when the principal is withdrawn. Failing to anticipate this tax treatment can lead to unpleasant surprises. The most effective strategy is to plan your withdrawals based on your tax bracket once you retire. This will allow you to minimize the tax impact and maximize the net amount you receive. In some cases, it may make more sense to forgo the tax deduction upon contribution in order to benefit from lower taxes upon withdrawal.
The PER is a powerful tool for planning for retirement, but it requires careful attention to avoid common mistakes. By reviewing the fees and performance of investment vehicles, comparing plans available on the market, tailoring your investment to your savings profile, and understanding the tax benefits, you can maximize the effectiveness of your PER and achieve your long-term financial goals.
