Five key questions for a carefree retirement

Retirement is one of the most significant phases in life. Early and careful planning is essential to ensure financial security and quality of life in old age. Well-thought-out preparation gives you the freedom to realise your dreams and goals in retirement, whether through travel, discovering new hobbies, or spending valuable time with family and friends.

Ultimately, you should be able to benefit as much as possible from your savings. With this in mind, we have listed the most important questions you should ask yourself as part of your retirement planning.

Question 1

What are your personal goals and wishes for retirement?

Have you always dreamed of traveling the world and getting to know new cultures? Maybe you plan to work part-time or engage in volunteer work? Or do you want to spend more time with your family and share unforgettable moments with your loved ones? You probably also have hobbies or interests that you finally want to pursue more intensively.

Your living situation also plays an important role. Is your current home suitable for old age, or are you considering moving to a smaller, more manageable apartment?

Consider what suits you best to fully enjoy your retirement. Your personal wishes and goals are crucial as they influence your retirement budget and the choice between a pension and a lump-sum payment.

Retirement planning in good time creates the necessary time frame to take measures that not only reduce your tax burden until the end of your working life but also build an additional, diversified wealth.

 

Question 2

What is your financial situation?

A clear analysis of your financial situation is crucial for successful retirement planning.

The first step is to create a balance sheet that considers all your assets (such as securities, real estate, and retirement savings) and liabilities (e.g., mortgages and loans).

It is also extremely important to get a clear overview of your income and expenses, not forgetting additional sources of income such as rental income, investment returns, and pension insurance. Ensure that your annual expenses are fully recorded and consider an emergency reserve.

Do your annual expenses match your bank statements, or have you forgotten something in the budget, such as taxes?

A complete overview of your financial situation helps you make informed decisions and achieve your goals in retirement. A realistic assessment of your overall financial situation is key to making the most of your opportunities and avoiding financial bottlenecks.

 

Question 3

Pension or lump-sum payment – which form of payment suits you best?

Imagine enjoying your retirement without financial worries. A lifelong pension could offer you this security, as it guarantees a stable monthly payout – regardless of how the markets develop. This means you don't have to worry about fluctuations in the value of your investments. However, since pensions are paid out nominally and not in real terms, inflation could be an issue.

On the other hand, a lump-sum payment offers you the flexibility to manage and invest your money according to your own ideas. This can be particularly attractive if you are well-versed in financial investments and want to maintain control over your assets. However, you should be aware of the risks, such as fluctuations in value that can lead to losses if you withdraw your capital at an unfavourable time.

Another important point is longevity risk and health. With a pension, you receive financial support for life, no matter how old you get. This can provide reassuring security. With a lump-sum payment, however, there is a possibility that your money will eventually run out. Additionally, any survivor's pensions that may be paid to your spouse or registered partner and, under certain conditions, to children in the event of death should also be considered. Some pension funds offer pensions with a refund, meaning that if the insured person dies early, the refund amount (minus the pensions received) is paid to the survivors or heirs.

Pension and/or lump-sum payments have their advantages and disadvantages, and it is important that you choose the alternative that best suits your personal needs and financial goals. The choice between a lifelong pension, a one-time lump-sum payment, or a combination of both is irrevocable and significantly affects your financial flexibility and security in old age.

It is also important to consider the tax aspects and the various investment options for your capital from the 3rd pillar to achieve optimal returns. You can spread the withdrawals from the pension fund, vested benefits, and pillar 3a over several years to reduce the tax burden. A solid investment strategy for your capital, comparable to the approach of pension funds, and avoiding excessive risks are also crucial. Careful planning can help you maximize your financial security in retirement.

 

Question 4

What tax considerations should you keep in mind?

Your choice between a pension and a lump-sum payment can have significant tax implications. A pension means that you will pay annual income taxes on your pension payments. This can represent a constant tax burden that you should consider in your budget.

If you opt for a lump-sum payment, it will be taxed once. However, you should also be mindful of the potential increase in wealth taxes that may result from the payout of your capital. As your wealth increases, so will your tax obligations.

It is important to carefully examine these tax aspects to make the best decision for you and optimally shape your financial situation in retirement.

 

Question 5

How do you want to secure your dependents and arrange your estate?

Often, entering retirement also leads to thoughts about your family and other dependents. How do you want to secure your dependents and ensure that they are financially well provided for?

A pension can often offer better protection for your survivors, as your surviving partner usually receives 60% of your original retirement pension. This can be particularly important if your partner is financially dependent on you.

Have you already created a will or inheritance contract to ensure that your assets are distributed according to your wishes? This is especially important if you choose a lump-sum payment, as it allows you to determine how any remaining assets are to be passed on to your heirs and the exact distribution.

A power of attorney ensures that your financial and personal affairs are managed according to your wishes if you become incapacitated. This way, you retain control over your future even in unforeseen situations.