Invest yourself

Regular income after you retire

Once you've taken retirement, your regular income will be partially reduced. How can you make up the shortfall?

When you take retirement, an important source of income falls away: your salary. If you made contributions to a pension scheme, whether it was a personal and/or a collective scheme funded through your employer, you will receive a (large) lump sum. But even combining this and your statutory pension, there is little chance that it will be enough to maintain the same standard of living as when you were working.

Money box

Starting a ‘money box’ prior to taking retirement is the safest option. It ensures a capital guarantee of up to 100,000 euros per bank and per person. This means that your money is protected. However, returns on savings have been low for years now, and your savings will lose their value because of inflation. Life keeps on getting more expensive whilst your savings grow much more slowly due to low interest rates. These days, 100,000 euros on deposit in most Belgian savings accounts barely yields 110 euros in annual interest. That's clearly not going to be enough to maintain your standard of living. 

What about property?

Would you prefer to have a regular, extra income from your capital during your retirement? Then you might consider buying physical assets, such as property, to let out. That might prove to be interesting because you will not be taxed on actual rental income. However: even property is not without risk. You must find suitable renters, invest in maintenance, arrange the required administration, run the risk of the property being empty, keep the renovation regulations in mind, etc. 

Buying property when you are older can become a weightier commitment than you may expect, especially as property is a long-term investment.

1. Investment Funds

One interesting alternative is to invest in investment funds that provide a regular income. An investment fund is a 'basket’ of shares and/or bonds.

Each investment funds follows its own strategy to achieve the desired return. Some funds make strong commitments in risky shares in order to generate potentially high returns. Other funds take a more conservative approach. They invest, for example, in companies with a proven track record. Or in dependable companies that regularly pay dividends to their shareholders (the investors).

A great many investment funds strive to pay a dividend (profit participation). The fund manager can do that, for example, by investing in shares from companies that themselves regularly pay a dividend. But it is also done by investing in government bonds and/or companies that pay out coupons regularly (interim interest payments).

By opting for this kind of ‘income-generating’ investment fund you are aiming for two objectives:

  1. A regular potential income in the form of a dividend.
  2. To profit from a possible rise in the markets which can, in turn, increase the value of your investment.

The potential return on investment funds depends on the risks that you can and are prepared to take, in line with your investor profile. In contrast to savings, neither your capital nor your return is guaranteed.

2. Structured products

A second alternative is structured products. These are investments whose yield depends on a specified, projected scenario. The return can, for example, be linked to the evolution of a share index, an interest rate, a currency rate, etc.

Any return payable is often issued as a coupon. This might happen on a yearly basis, or once only, when the product matures (for example, after 5 or 10 years). The structured products from ING offer individual investors full or partial (for example, 90%) capital protection. That means that when the product matures you receive back the amount that you invested, except in cases where the issuer has gone bankrupt.

You can achieve potential returns with structured products. The amount of the return depends on the risks that you can and are prepared to take, in line with your investor profile. In contrast to savings, neither your capital nor your return is guaranteed.

3. Branch 23

A third option is to choose for a branch 23 insurance policy. This is a life insurance policy which is tied to investment funds. The return depends on how the underlying funds perform. An advantage is that you can name one or more beneficiaries: if you die, the remaining capital will be paid to your beneficiary/beneficiaries. In such an event, inheritance tax will be due on the capital. A branch 23 insurance policy is an interesting instrument for asset planning and for providing a potentially regular income.

Want to learn more?