Is now the time to start thinking about your pension?

Are you in your twenties or thirties? Then probably the last thing on your mind is your pension. Nevertheless, now is the best time to get a head start for later.

Pension? If you are in your twenties or thirties, you likely have other things on your mind: progressing your career, possibly starting a family or buying a house. Besides which, you just want to enjoy life. But, setting money aside for a retirement that is 30 or 40 years off? Hmm... So, it’s understandable that preparing for your retirement now is not at the top of your priority list.

Regardless, the decisions you take today (or don’t), will have a big impact on how much pension you have later. The Covid-19 crisis demonstrated that we never know what the future will bring. All the more reason to start preparing for your future today, including your pension. 

Here’s what you need to know:

1. For most retirees, the statutory pension is now no longer enough to live on comfortably. According to calculations done by OECD, the average statutory pension in Belgium is 63.7% of final salary amount (net). For you as an individual, that percentage will depend on your status (self-employed, employed or civil servant), your personal circumstances, the level of your income and/or the number of years you have worked. Roughly speaking, you might have to do without approximately 36.3% less income, overnight.

2. In Belgium, the government stands by us from the cradle to the grave. If we cannot work due to illness, we can count on receiving an invalidity benefit. If we have children, we receive a growth package. However, the price of our welfare state is high. Therefore, no policymaker today will 100% guarantee that you will receive an equivalent level of statutory pension in 30- or 40-years' time. Or that you will still be able to retire from the age of 67. A poll of 800 young Belgians  concluded, for example, that half of those polled expect to receive no statutory pension at all later in life.

3. For all the above reasons, more and more Belgians are building up their own pension reserves and/or many employers are providing assistance to do so through collective insurance. In the latter situation, your employer withholds a portion of your salary and has it invested wisely. In addition, the employer also contributes an amount to that pot.

Should you start building up your own pension reserve at 25 or 55? It makes a massive difference. Because you are still young, you have a huge advantage: time

Getting started on your pension in your twenties or thirties: how do you begin?

Step 1

First make sure you have a savings buffer amounting to between three and six months of net salary to cover any unexpected expenses. Put aside a higher amount as a buffer if that gives you the peace of mind you need.

Step 2

Start with pension savings. You can do this as soon as you turn 18 and have a taxable income. Moreover, you can enjoy a potential tax benefit. That way you’re adding another string to your bow:

  • You build up a reserve on a yearly basis and have that money earning return for you until you reach retirement age. When you retire, you can have that money paid out.
  • Your smart move could also get you a governmental tax benefit if you meet certain conditions.

If you are self-employed, then you can opt to have a free supplementary pension as a self-employed person (VAPZ). This is another way to build up a reserve in a tax-efficient way.

Step 3

In the meantime, you already have a good foundation for later: a statutory pension, a savings buffer, a tax-efficient pension savings plan and possibly collective insurance or a VAPZ.

An additional step is to put money aside without benefitting from another tax advantage. That is easy to do via a savings account, investment fund or insurance products.

The safest option is to put some money into a savings account on a regular basis. After all, your money is protected up to 100,000 euro per person, per bank. However: due to very low interest rates (base rate 0.01% and loyalty premium 0.10%), both your level of return and later enjoyment of this money is likely to be low. [1]

And as you already know, your extraordinarily strong advantage, as someone in their twenties or thirties, is time. That’s why you might want to consider investing. Although markets do go up and down, over the long term they show a clear, upward trend.

Since you have many years ahead of you at your age, investing can be an interesting option if you aspire to getting a higher return on your money than a savings account can provide. Does this mean taking more risks? Yes: investing always implies taking risks. Simple solutions can help you lower that risk: for instance diversifying your investments and not putting all your eggs in one basket.

How can I best prepare for my retirement?

Start saving for your pension plan with ING today, so you can enjoy the advantages in the future.