Pension savings: save the grey hair for later
Keytrade Bank
keytradebank.be
October 07, 2024
4 minutes to read
From the very first day of your retirement, you may only be left with half of your previous monthly salary. That is, unless you are smart and think about pension savings for younger people. Congratulations! You have already taken the first step by finding your way to this blog. Now it’s our turn. We will show you why you can never start saving too soon for a carefree life when you finish your career.
Whether you’ve just left school for good or you already have several years of work experience under your belt, you know that life doesn't come cheap, particularly if you are considering things like a home, a family and all the rest.
With the help of a smart pension savings plan, you can still have sufficient resources to pursue your dreams after bringing your active career to a close.
But why a pension savings plan? It's because this way of saving gives you a number of clear benefits – especially as a (young) adult.
1. You are buying security
A pension savings account represents security. You pay an amount into your account every month from the age of 18 up to the maximum age of 65. In principle, you cannot draw on these savings throughout this period.
On the other hand, you earn a return on the money you've saved. This return depends on which savings plan you choose. Pension savings vs. putting your money in a savings account: the first option gives you a much higher yield.
2. Well (and early) begun is half done
The great thing about pension savings for young people is that the longer term gives you a higher final amount at the end of the day. In other words, the more you hesitate, the less benefit you will get from pension savings.
The process behind this is known as compound interest: everyone who saves receives interest for doing so. This interest is deposited together with your savings. The interest you are paid the next time is calculated on your savings, plus all the interest you have already received. This interest on interest on interest builds up, resulting in a positive snowball effect.
What does it mean in real life? Although in theory you save for 40 years instead of 20, in practice the compound interest may end up paying you out (much) more than double the final amount.
An important benefit of pension savings: as soon as you start earning more, you can simply increase your monthly savings amount.
3. You also receive a nice refund from the taxman every year
Suppose you deposit EUR 1,020 in your pension savings account each year, the next year you will receive 30% of this in the form of a tax refund. This translates into EUR 306 per year. Over a period of 40 years, this earns you an extra EUR 12,000 net. What you invest, up to a ceiling of EUR 1,310 per year (or EUR 109.17 per month), entitles you to receive a refund of up to EUR 327.5 annually via your tax return. A tax reduction of 25%.
4. You decide your own level of risk
You could place your money in a safe savings account or take more of a risk by buying shares. You have the same options with your pension savings.
Specifically, you can choose between pension savings funds and pension savings insurance. In the case of pension savings insurance, you can always rely on a minimum return. You may also be entitled to profit sharing. This is the safest choice, though it does mean a lower return.
With a pension savings fund, your money is invested. The benefit: in a favourable market, this can only be good news for your returns. But the opposite is also true. And this is why there is never a minimum guaranteed return for this type of fund, so you don't know what you will have left from your savings at the end of the day.
Pension saving while young: the ideal way to learn for later
In times when online promotions, Black Friday and other discount days are everywhere you look, it is definitely worth the effort to look a little further ahead. Even when you are a bit older, the world will still be full of countless places to visit and new adventures to experience with the most important people in your life.
Pension savings for young people are a safe, yet flexible way to start building up savings over the long term and to manage your own resources in a responsible way over the years – especially with a view to getting a car loan, home loan or another investment. We will of course be happy to guide you through this.
Find out all about pension savings via Keytrade Bank
Do you feel that pension savings could open many beautiful doors for you in the future? Would you like to find out more about this popular form of savings among young people? At Keytrade Bank, we definitely have a plan that will suit your needs.
