Retiring from work earlier is a dream that many people secretly cherish. However, anyone who has ever investigated the financial consequences of early retirement now knows that it is a very expensive joke. You need quite a lot of money to cover the period until you turn 65. Fortunately, there are several ways to achieve that goal. If you start early enough, you can save enough money to make your dream come true. But how do you go about that?
Why is retiring early so expensive?
From the age of 65 you reach your official retirement age. From that age onwards you will receive a pension from the government and your former employer. If you want to stop working earlier than the age of 65, you will have to bridge that period. You will then no longer receive any income, but your pension will not commence either. This means that if you want to stop working five years earlier, you also have to bridge at least five years of income. Because during the period that you stop working, you no longer accrue pension for your pension itself. So you have to finance the period in which you want to retire early and you have to compensate for what you lose in pension as a result. If you start looking for a financial solution too late to save enough money, it is no longer possible. So you should start saving, investing or another financial construction right away so that you can stop working sooner without any worries. This is also more attractive from a tax perspective, because there are various ways to save money with major tax benefits. The sooner you start building capital for the future, the more you can benefit.
What extra money do you need to supplement your pension?
From the moment you retire, you will receive AOW and employer pension. It is always assumed that you earn 70% of your last earned or average income over your working life. If you want to have more money available after retirement, you will in any case have to start saving, investing or insuring to make this possible. If you want to stop working earlier than the age of 65, you should certainly choose a financial construction that will allow you to bridge the period until retirement and compensate for what you lose in pension accrual. The early retirement scheme no longer exists, which means that you will have to arrange your own supplementary pension. Exactly how much you need varies from person to person, because you may already have a pension gap due to a change of employer, divorce or other common causes. You need a good financial expert to calculate how much money you need to make it possible to retire earlier.
How can you provide a supplementary pension so that you can stop working earlier?
Single premium policy or Annuity policy
With a single premium or annuity policy you can build up tax-attractive capital for the future. You do not have to pay tax on what you save or invest with such a structure. Every year you can pay a fixed amount into the policy, which you can then deduct from your taxes. At the end of the term, you will receive your capital in one go or monthly as additional or replacement income. The benefit at the end of the term is taxed, but you will earn less by then and can therefore pay tax at a lower income rate.
Save or invest
By saving for a longer period of time you choose a safe way to build capital. By investing you get relatively higher returns, but the risk is slightly higher. In the longer term, investing is also relatively safe, but you have to decide for yourself which method of capital accumulation gives you the most peaceful feeling.
Selling a house
Selling your own house is a popular way to acquire a supplementary pension. When you sell your house and then rent it, you naturally have physical capital in your hands that results from the sale. Renting also costs money and often even more money than the mortgage costs of an owner-occupied home would amount to in practice. This is therefore usually not the smartest way to work towards extra pension.
Bank savings is a fiscally interesting way of saving or investing, which you may only use to acquire extra pension or to pay off your mortgage. Bank savings is becoming increasingly popular because it has low costs and is very favorable from a tax perspective. You can compare bank savings with a salary savings scheme or life-course scheme, where you also enjoy tax benefits on the condition that you can only use the assets for predetermined purposes.