As retirement approaches, individuals over 50 face heightened financial concerns, particularly if they haven’t saved adequately. To bolster savings, they may need to save over 20% of their monthly income, avoiding high-risk investments. Purchasing a home could be costly, with looming mortgage risks. However, there’s a silver lining with tax advantages from retirement savings plans (PER), which become more beneficial after 50. A balanced investment strategy is crucial, offering options between cautious and dynamic profiles for optimal performance.
Are you over 50? Great news! You’re just a few short years away from enjoying the benefits of retirement. However, as this milestone approaches, many in their fifties might feel anxious about their financial readiness, especially if they haven’t saved enough to supplement their basic pension. To build up those crucial savings, consider saving more than 20% of your monthly income—this is significantly higher than the typical recommendation for those still decades away from retirement.
It’s essential to resist the urge to gamble your savings on high-risk investments in a bid to quickly increase your nest egg. This strategy could leave you empty-handed by the time you retire. As Gauthier Haem, Sales Director at Yomoni, points out, “The objective remains not to lose everything over the last 10 years.” Striking a balance between security and growth in your investments should be your primary goal.
Is Buying a Home After 50 a Wise Retirement Move?
If you’re still renting, purchasing a primary residence on credit may not be the wisest choice for your retirement strategy. Qualifying for a mortgage can become more complicated and expensive as you age. Even though it’s possible to secure a mortgage after turning 55, the costs associated with loan insurance can be quite high. Additionally, unless you choose a shorter repayment term, you may find yourself making mortgage payments well into retirement.
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Maximize Tax Benefits of PER After 50
There’s a significant advantage to consider with retirement savings plans (PER) if you’re over 50. The tax benefits associated with these plans can be particularly appealing. Contributions to your PER can often be deducted from your taxable income, up to 10% of your income from the previous year or a maximum of €35,194 for high earners. The higher your income, the more significant the potential tax reduction. For instance, contributing €10,000 to a PER with a 30% marginal tax rate results in a €3,000 tax reduction, which jumps to €4,500 for a 45% tax rate. With just ten years to go until retirement, the benefits of PER become even more significant as incomes typically rise and family sizes shrink, increasing your marginal tax rate which enhances the attractiveness of the PER option, as Stéphane de Vaulx explains.
Dynamic Profiles, PEA, and Private Equity: For Those Who Embrace Risk
However, be cautious. As François Dillemann, savings sales director at Epsens-Malakoff Humanis, warns, “With only a decade left before retirement, a conservative investment strategy may be too limiting.” Relying heavily on euro funds can restrict your potential returns. It might be worth exploring flexible management options that allow you to adjust your asset allocation between euro funds and equities—consider a 50/50 split, for instance. But remember, exceeding that threshold can lead to higher risks, including losing a substantial portion of your investment. Alternatively, you might consider a “dynamic” investment profile, which achieved an average return of 7.71% in 2023, compared to just 5.38% for a more cautious approach, according to Good Value for Money.