Thinking about your golden years when you've only just begun working? When you're young and busy building a life, there are so many things on your mind other than preparing for retirement! Still, even if it sometimes feels premature, planning for retirement is one of the best investments you'll ever make for a comfortable future. And the sooner you start, the better. But where should you begin as a young professional?
Belgium's pension system works on a contributions-financed system: the contributions from today's working people fund the pensions of today's retirees. However, as life expectancy increases the population is ageing and there are proportionally fewer and fewer people working people to fund pensions. To overcome this challenge, many countries have reformed their systems, generally leading to higher contributions, older retirement ages or even cuts to pensions.
Your income will inevitably drop once you retire and a pension alone is often not enough to maintain a decent standard of living. Moreover, it's hard to envisage what the pension system will be like in 30 or 40 years. Fortunately, there are savings schemes to boost your pension. This is what's called funded retirement: generating an additional income to supplement your contributions-financed pension. Let's take a look at the options.
As its name suggests, this scheme is designed to provide a supplementary pension. With a PER, you choose to invest in different vehicles, with or without guaranteed capital, and therefore with different levels of return depending on your investment strategy. This sort of investment is available from the traditional players: banks, insurance companies, pension funds or mutual insurance companies. The PER offers attractive tax breaks because your payments into it each year can be deducted from taxable income. This is ideal if you are in the highest marginal tax brackets and can make large contributions to reduce your income tax.
Buying your own home so you don't have to pay rent when you retire or investing in a rental property to supplement your income can be a good strategy. It goes without saying that the ideal scenario is to buy a property while you're working and finish paying off the mortgage before retirement.
Despite its bad reputation (lack of transparency, speculation, etc.), the stock market offers good returns provided you invest over the long term to smooth our market fluctuations. Moreover, to make your stock exchange investments more worthwhile, Birdee can offer a customised securities account where you choose the investment vehicles (ethical, sustainable and responsible, sector-based, etc.) so you can benefit from the financial markets in complete transparency.
This is likely one of the best retirement investments:
Ultimately, young people can prepare for retirement in many ways, and the sooner you start the better. Especially since investing early, even on a limited budget, can make a big difference in the long run! With Birdee, you can start investing from €50, simply and directly online, based on your interests and all for a low fee.