The average loss of income at retirement is about 50% for a man. The outlook is worse for women, since their pensions are 13% lower than average because of careers often interrupted by the arrival of children. All analysis point to a worsening of the situation. In 2050, a 65 years old man retiring should receive a pension of 42% of final income. There is therefore an urgent need to establish a retirement savings strategy to be able to maintain its standard of living.
However, building a strategy of additional income for retirement should be approached with great caution.
Table des matières :
- 1 What is a good retirement solution?
- 2 Personal solutions you can implement
- 3 Retirement savings at work (when employed)
- 4 To sum up
What is a good retirement solution?
The choice of investments to build a retirement savings is of major importance. Ideally, they should be able to gather the following:
◦ Constant yield
◦ Advantageous taxation (income and transmission)
◦ Protection against inflation
Suffice to say that this list is very similar to that of the ideal placement, to meet all of these points there must not be one investment, but the combination of several. We deliver below the presentation of six retirement savings solutions, that bring together all the necessary conditions for the establishment of a balanced plan, but this list is not exhaustive.
Personal solutions you can implement
Furnished rentals, performance and protection
It is at first glance the perfect investment to create additional income for retirement. The financing through a loan, coupled with the amortisation mechanism, enables to realise an operation, which is tax neutral for many years.
The rents ensure a consistent performance and are inflation-indexed. This is therefore an investment that provides protection against currency depreciation.
Furthermore, investments in furnished real estate allow to collect fully tax-efficient rents for many years. An ideal solution for retirement provided the real estate programs are chosen carefully.
This investment must be supervised by a competent professional, especially when it is a « retirement fund ». Indeed, in terms of transmission/inheritance, the possible death of the investor can have significant financial consequences: the repayment of credit by the insurance will be taxed according to the marginal tax rate, and it will be the same in case of capital gains.
Certain precautions must be taken to protect against these adverse effects, such as paying attention to the age of the investor and his health, and considering the use of family LLC, and spread the loan insurance across two people.
The « assurance-vie » contract, taxes and availability
The « assurance-vie » contract remains the Swiss Army knife of investment. It adapts investments at risk the investor is willing to take. In terms of retirement planning, it is therefore a significant support.
During the capitalisation phase it is possible to allocate savings between capital guaranteed funds offering a secure but low performance, and equity funds, which are riskier but have higher historical performance.
Depending on the individual circumstances and the time available, multiple strategies can be implemented to generate a supplementary retirement income. All kinds of funds are available, and it is possible on the same contract to be invested in bonds, stocks, real estate, or even wine!
At maturity, the assurance-vie contract allows a couple to withdraw each year 9200 euros of interests (i.e. in addition to the capital) tax-free. An annuity can also be taken at retirement.
In terms of inheritance tax planning, the contract is sent with its own tax deduction of €152,500. Hence, this is a tool that combines many qualities, whether it’s for retirement or inheritance planning.
Finally, the money placed on an « assurance-vie » contract remains available at all times. The liquidity of investments is total and unconditional. A withdrawal is generally possible at D +7.
REITs (or SCPI), steady income without management constraints
Investing in real estate through REITs is a coherent retirement solution. The principle is to subscribe to shares of civil companies, which manage a park of often commercial properties.
REITs allow the investor to be free of all management constraints while receiving regular income in the form of rents. As such, these revenues are regular and protected from inflation.
The real estate may be made on credit, and has the advantage of being of great diversification. Indeed, the minimum investment in REITs is a few thousand euros, which authorises the construction of a portfolio of REITs.
In a retirement perspective, it may be interesting to make the purchase of dismembered REITs.
The investor buys the bare property at a discount for a period of 10 or 15 years. During that time, he does not receive any rents and therefore does not suffer heavy taxation on property income, which are in addition to income from his professional activity.
At the time of retirement, the dismemberment ends, the investor becomes full owner and begins to collect rents. These are subject to income tax, but it is largely reduced due to the end of the professional activity.
Finally, it is also possible to purchase shares of REITs in an « assurance-vie » contract. There is a tax advantage here: the application of the « assurance-vie » taxation on the income received, and the application of the deduction, originated from insurance law, in matters of inheritance.
Retirement savings at work (when employed)
The PERCO, efficiency and flexibility
The PERCO is a preparation tool for retirement, favored because of its efficiency and its flexibility.
During the accumulation phase, the PERCO is powered by both the savings efforts of its owner, as well as through the participation of its employer via a contribution. This contribution is exempt from charges and is not considered an income, on a tax point of view.
For a business, it is therefore an extremely effective way to distribute an extra income while minimising the cost. For the planholder, the bonus granted through the contribution mechanism is extremely interesting. The savings paid into a PERCO is blocked until retirement.
At the time of entitlement to the compulsory pension scheme, amounts held in the PERCO can be recovered in the form of capital or an annuity. Annuity payments are taxable under the preferential annuities scheme (60% tax reduction). If the capital lump sum is taken, interests are exempt from taxation.
Besides the advantages mentioned above, the PERCO is favored because of its availability. Indeed, the blocking of savings until retirement is only theoretical. Many possibilities of early release exist, especially the acquisition of the primary residence.
The « Article 83 » contract: annuity for employees
The « Article 83 » contract is a retirement savings plan subscribed by a company for its employees. Its operation is based on mandatory and voluntary periodic contributions, which at the time of retirement will allow the policyholder to receive an annuity.
The money is placed on a group « assurance-vie » policy, which invests on secured euro funds or dynamic funds.
Both the company and the employee benefit from tax relief incentives to supply the contract.
For the company, contributions are exempt from social security contributions. Hence, this is a very interesting way of providing additional income at a lower cost. For the employee, contributions made by the company are not subject to income tax, and voluntary contributions are deductible from total income.
One of the characteristics of the Article 83 contract is to only allow the payment of an annuity, and only at retirement time. In other words, it is not possible to recover the capital, except in the application of the 5 cases of early release.
However, the Article 83 contract remains portable from one firm to another in the event of changes in the working life of the employee.
The « Madelin » contract, an annuity for the self-employed
The « Madelin » contract is a tool to diversify retirement savings acclaimed by 58% of self-employed individuals.
Its operation is based on mandatory and voluntary contributions that will be fed into an « assurance-vie » contract. The money saved is invested in secured funds or dynamic funds.
At the time of retirement, the subscriber will receive an annuity calculated on the accumulated savings on the contract, and on the mortality table.
The calculation of the annuity rates can be performed at policy outset, on each payments, or at the time of retirement. The option for a contract guaranteeing annuity rates at policy outset seems to be the most profitable, because of the increase in life expectancy that leads to a decrease in the annual annuity rate.
Investing on a Madelin contract allows for tax benefits.
At first, contributions are deductible from total income. This tax deduction will have more weight as the taxpayer is in a high tax bracket. Part of the contributions is refunded by the tax savings.
Secondly, payments made by the subscriber are out of the tax base in respect of the wealth tax (ISF). Similarly, the annuity received at retirement will not be recognised with regards to the wealth tax.
The main constraints surrounding the « Madelin »contract are the blocking of the savings until retirement, and the inability to take a capital lump sum from it.
To sum up
There are many ways to get additional income for retirement. However, it is essential to thoroughly analyse the impact of each investment based on its total assets and multiple scenarios: environment, taxation, dependency, succession… Unless you have a perfect control of all these parameters, asking professional assistance is not superfluous. The pension stakes are high!