How I set up my Retirement Savings Plan (PER)

Why is it essential to set up a Retirement Savings Plan (PER) as soon as possible when working in Luxembourg? Prepare for a more comfortable retirement and enjoy tax benefits.

Define your retirement needs and goals

Before subscribing to a Retirement Savings Plan in Luxembourg, I realized that it was essential to understand my needs. This then allowed me to define my retirement goals. To do this, I asked myself several key questions:

At what age do I want to retire? And therefore, how many years will I have to contribute from my current age?
What is the minimum and maximum supplementary pension I would like to receive?
What is the maximum monthly savings amount I am willing to invest?
Do I have other savings or investment products(life insurance, real estate, etc.)?
Do I have a supplementary company pension or a second pillar pension?
How much risk am I willing to accept on my investments? In other words, do I prefer:
- a much higher expected interest rate, with the risk of unpleasant surprises, or
- a low return, i.e., an interest rate slightly above inflation but virtually guaranteed?
  For me, investing is a long-term commitment and the additional retirement income provided by this PER is marginal. I therefore want to opt for a so-called aggressive solution, i.e., one with a high level of risk.

In conclusion, when I retire at 65 (the legal retirement age), I want to have an additional income of €400 per month. I am therefore prepared to accept a little risk for my retirement savings, but I would still prefer to avoid excessive fluctuations.

Which provider offers a PER that is suited to your situation?

Once I have defined my objectives, I need to choose a provider that can offer me a Retirement Savings Plan tailored to my needs. There are several banks, fund managers, and insurance companies in Luxembourg that offer Retirement Savings Plans.

Here's how I chose between the different Retirement Savings Plan offers

Reputation and reliability of the PER provider: I looked for a solid provider recognized for its expertise in savings management. I therefore selected three financial institutions, including two banks and one insurance company.
PER investment options: I compared the funds offered by the three institutions, making sure they matched my investor profile (balanced, with a certain tolerance for risk).
Management fees charged for my PER: I inquired about management fees and any hidden commissions. Some providers charge high fees, so I looked for those that offered good transparency and competitive costs.
Flexibility of my Retirement Savings Plan: I also took into account the possibility of changing my Retirement Savings Plan contributions or my investment strategy depending on changes in my financial situation.

Tips for taking out a Retirement Savings Plan

The next step was to subscribe to my PER. When I signed the contract, I confirmed the terms and conditions of the PER, including the amount of my monthly payments and the investment funds I was going to choose. Here is my advice to help you get the most out of your Retirement Savings contract.

Flexibility of payments into the PER

Adjust the monthly payments into your PER to suit your savings capacity. Make sure you can change these amounts as you wish without additional fees. I opted for monthly payments of €250 into my PER, or €3,000 per year. This allows me to contribute regularly to my retirement savings while maximizing my tax benefits.

It is important to note that the annual tax deduction limit on the PER is €3,200 in Luxembourg. Please note that we are talking about a tax deduction, which means that this amount will be deducted from your income and not from your tax (which would be equivalent to a tax reduction).

Choosing investment funds for your PER

When deciding how to invest your PER, stay true to yourself and make sure you can sleep soundly :-): In terms of fund allocation, I ultimately chose a balanced investment profile, with a combination of stocks and bonds. Given my cautious nature, I preferred to reduce my risk exposure, even though this is a long-term investment.

Designating beneficiaries for my PER in the event of death

Finally, in agreement with my wife, I have also designated my children as beneficiaries of the savings I have accumulated, in case something happens to me before I retire.

And after opening a Retirement Savings Plan?

Once the PER was in place, it was also important to ensure that I was regularly contributing the amounts necessary to achieve my income goals when I retired. Here's how I did it:

I set up automatic payments to my PER. To make it easier, I set up a monthly automatic transfer from my bank account. That way, I don't have to worry about missing a payment or not taking advantage of the maximum tax deduction.
I adjust my payments according to my savings capacity. If my income increases or I receive a bonus, I want to be able to decide to increase my payments. Conversely, in the event of financial difficulties, I can reduce or temporarily suspend my contributions.
I make sure I am getting the most out of my PER in terms of tax benefits. Every year , I check that I am reaching the tax deduction limit of €3,200.
I regularly monitor the performance of my investment. Every year , I consult my advisor to review the performance of the funds in which I have invested. This allows me to see whether my capital is growing as expected or whether I need to adjust my strategy.
I think about my risk strategy. As I get closer to retirement, I may decide to switch to a more conservative investment profile. For now, I am happy with my balanced strategy, but I am considering changing it in about ten years.

The PER: a product to set up as soon as possible

Setting up a Retirement Savings Plan (PER) in Luxembourg is an accessible process that can make all the difference when you retire, whether you are a resident of Luxembourg or a cross-border worker. But as with many things, it is essential to clearly define your objectives in advance. Then, your strategy, particularly in terms of risk, can be adapted according to your age. The closer you get to retirement age, the more your risk profile needs to be adjusted and therefore reduced.

This process has allowed me to ensure that I will have a comfortable additional income when I retire, while benefiting fromtax advantagesthroughout my working life.

So now it's up to you, and if I have one piece of advice, it's to set up this PER as soon as possible in order to benefit from the tax deduction. Find advice from our experts on how to optimize your tax situation in Luxembourg here.