Financial taboos: retirement
Despite being a huge milestone, retirement isn’t something we often talk about. Yet having an open conversation can lead to new insights and lift a financial weight.
For this video series on financial taboos, we invite four members of the ABN AMRO team to break money taboos by answering some ‘awkward’ questions. This is part 3: retirement income. How is Inge, a freelancer, using her business earnings to save for retirement? What is Jeroen, an employee, doing? And when will KaiLe start saving for her retirement?
Watch the video and read the tips from our advisers about saving for your retirement.
Tips from our adviser
Monique Bonnet-Heeren, an adviser on the Preferred Banking team, often talks to clients about their pensions and retirement. She has answered some frequently asked questions.
Is my workplace pension enough?
“If you want to know how much pension is enough for you, you need to envisage your lifestyle once you retire. Does your workplace pension give you the life you want? Retiring means more time for yourself, and I always remind clients that free time costs money. If you want to maintain your current standard of living, you should have a look at how much pension you’ll get later on.
Even if you’re in employment, you can’t automatically assume your employer has a solid pension scheme in place. Also, think about whether you want to continue working until you reach state pension age or retire earlier.”
What should I do if I want to retire early?
“In most cases, you’ll need to top up your pension before retiring. That’s because the capital you’ve saved for your pension will be paid out over a longer period, so your monthly benefits will be lower. Although it’s not the end of the world, it’s something to be aware of.”
How much should I save for my retirement each month?
“I can’t give a definitive answer to that question. It all depends on your outgoings when you retire as well as inflation and changes to tax rules. We can also work out your annual margin to see how much you can put towards your pension and qualify for a tax credit.
I often refer clients to the Dutch National Institute for Family Finance Information (Nibud). They have a tool to calculate your income needs and outgoings. If you want a more detailed plan, we can make one in Financial Outlook.”
At what age should I start saving?
“It’s never too early! But I admit, it’s not easy. If you’re at the very beginning of your working life, retirement is the last thing on your mind. You’re probably looking to buy your first home or maybe pay off your student debt. Once you’re past that phase and are more or less settled, usually when you’re in your 30s, it’s time to think about your pension. You shouldn’t wait any longer than that, whatever your job situation is.”
What about inflation? What will my money be worth in the future?
“Workplace pensions in the Netherlands are always based on investments that can evolve over time. In that sense, investments are much better protected against inflation than savings.
If you want to save for your retirement and have time on your side, investing is often the wisest option. You could choose to invest in a pension investment account. Think of it this way: in the future, you’ll need to spend four or five euros for every euro you spend now.”
Are there other ways to fund your retirement besides saving and investing?
“Absolutely. For instance, many homeowners are in positive equity, meaning their home is worth more than their outstanding mortgage. While you may want to continue living in your own home once you retire, you may also want to downsize. If you do, you could release a big sum of cash by selling your current home.
Some people also choose to retire abroad, where the cost of living is lower. Equally, you could receive a large inheritance, but you shouldn’t include that as a given in your financial planning.”
Is it important to talk about retirement and pension?
“It’s very important. Everyone wants to enjoy life and do things that bring them happiness. But those things often cost money. Pensions and retirement crop up in every client consultation I have. How do you envisage your retirement?
It’s important to think about that, especially if you’re in a relationship with traditional male and female roles. For instance, if one of you passes away, surviving dependants’ pension will come into the picture.
People struggle to talk about pensions and retirement, thinking it’s a long way off. It’s natural to want to live in the moment. But it’s also important to think about your future and know you’ll be able to continue enjoying life as you grow older. I’d love to talk about that with you in a consultation.”
