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 comfortableretirement and enjoy tax benefits.

Defining Your Retirement Needs and Goals

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

1. At what age do I want to retire? And consequently, how many years will I need to contribute starting from my current age?
2. What is the minimum and maximum retirement income I would like to receive?
3. What is the maximum monthly amount I’m willing to set aside?
4. Do I have other savings or investment products?(life insurance, real estate, etc.)
5. Do I have a company pension plan or a second-pillar pension?
6. What level of risk am I willing to accept on my investments? In short, 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 retirement supplement via this PER is marginal. I therefore want to opt for a so-called aggressive solution, i.e., one with high risk.

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

Which provider offers a PER suited to my situation?

Once my goals are defined, 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 made my choice among the various 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 at , ensuring they matched my investor profile (balanced, with some risk tolerance).
• Management fees charged for my PER: I looked into 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 considered the ability to adjust my contributions to my Retirement Savings Plan or my investment strategy based on changes in my financial situation.

Tips for opening a Retirement Savings Plan

The next step was to sign up for my PER.

When signing the contract, I agreed to the terms of the PER, including the amount of my monthly contributions and the investment funds I would choose.

Here are my tips to ensure that opening your Retirement Savings Plan goes as smoothly as possible.

Flexibility of PER Contributions

Adjust your monthly contributions to your PER to match your savings capacity.

Make sure you can adjust these amounts as you wish without additional fees.

I opted for monthly contributions of €250 to my PER, or €3,000 per year. This allows me to contribute regularly to my retirement savings while maximizing my tax benefits.

It’s important to note that the annual tax deduction limit for the PER is €4,500 in Luxembourg. Please note: this is a tax deduction, meaning this amount will be deducted from your income, not from your tax liability (which would be equivalent to a tax credit).

Choosing Investment Funds for Your PER

When deciding how to invest in your PER, stay true to your nature and make sure you sleep soundly :-)

As for the fund allocation, I ultimately chose a balanced investment profile, combining 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 accumulated savings, in case something were to happen to me before I retire.

And after opening a Retirement Savings Plan?

Once the PER is set up, it’s also important to ensure that I regularly contribute the amounts needed to meet my income goals upon retirement. Here’s how I went about it:

• I set up automatic payments into my PER. To make things easier, I set up a monthly automatic transfer from my bank account. This way, I don’t have to worry about missing a payment or missing out on the maximum tax deduction.
• I adjust my contributions based on my savings capacity. If my income increases or I receive a bonus, I want the flexibility to decide to increase my contributions. Conversely, in the event of financial difficulties, I can reduce or temporarily suspend my contributions.
• I ensure I’m maximizing the tax benefits of my PER. Every year, I verify that I’m reaching the €4,500 tax deduction limit.
• I regularly monitor the performance of my investment. Every year, I consult with my advisor to review the performance of the funds I’ve invested in. This allows me to see if my capital is growing as expected or if I need to adjust my strategy.
• I’m thinking about my risk strategy. As I get closer to retirement , I might decide to switch to a more conservative investment profile. For now, I’m satisfied with my balanced strategy, but I plan to adjust it in about ten years.

The PER: A Plan to Set Up as Soon as Possible

Setting up a Retirement Savings Plan (PER) in Luxembourg is an accessible step that can make all the difference when you retire, whether you’re a Luxembourg resident or a cross-border worker.

But as with many things, it is essential to clearly define your goals from the outset. Then, your strategy—particularly regarding risk—can be adjusted 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 source of supplemental income when I retire, while also enjoying tax benefits throughout my working life.

Now it’s your turn, and if I have one piece of advice: set up this PER as soon as possible to take advantage of the tax deduction. Find our experts’ advice here on how to optimize your taxes in Luxembourg.

To take your retirement planning a step further

To learn more about the retirement system in Luxembourg, visit this page.

We also invite you to consult our partners to benefit from expert advice on the subject.

Axa Insurance: Which solution should you choose to plan for retirement?

Raiffeisen Bank: everything you need to know about the benefits of retirement savings