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Financial independence in old age – strategies for private retirement planning

Digital innovations - Tax-optimized investments - Individual consulting

Tailor-made solutions for investment, insurance and finance

Financial independence in old age – strategies for private retirement planning

Digital innovations - Tax-optimized investments - Individual consulting

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Financial independence in old age – strategies for private retirement planning

Do you dream of looking to the future carefree and without financial worries? Would you like to fully enjoy your retirement, spend time with your family, perhaps travel, and not have to worry about your finances? Financial independence in old age can become a reality. It is crucial to address this topic early, define your goals, and choose the right private pension plan.

What does financial independence mean?

For many people, financial independence is at the top of their wish list. It's an enormous relief not to have to worry about money matters. This isn't about having excessive amounts of money. Financial independence is always individual and depends on personal needs and expenses.

Financial independence means being able to live off your passive income. It means you don't have to work to cover rent, loans, fixed costs, and your standard of living. How much money you need depends on your individual circumstances and how much you spend each month.

Financial independence means being able to control your own income and live off it. Furthermore, financial independence knows no age limit. Some people strive to be financially independent by the age of 30 or 40, while others aim for retirement. Experience shows that the latter is often easier to achieve, as young savers have ample time to accumulate the necessary capital before retirement.

How can I achieve financial independence in old age?

The question remains, then, how can you achieve financial independence? Below, we'll examine how you can become financially independent in retirement using your private pension plan. If you want to live off your passive income as early as age 30 or 40, other strategies may be necessary!

Step 1: Inventory and goal setting

The purpose of this financial assessment is to determine how much money will be needed in retirement. This involves comparing all expenses with expected income. For example, someone who owns a paid-off home will need less money in retirement, as there will be no rent to pay. High entitlements to the state pension can also reduce the additional financial requirements.

The following factors should be taken into account:

Revenue: This includes old-age pensions, claims from private retirement savings or investments, as well as rental and lease income.
Fixed costs: This includes rent, utilities, loans, insurance, and other contracts.
Cost of living: These are also crucial for the overall assessment.

The costs are naturally individual and depend on personal circumstances. However, it's important to calculate realistically and err on the side of overestimating your needs rather than underestimating your expenses. The difference between income and expenses represents the minimum requirement that must be covered by private retirement savings.

Now you know how much money you'll need each month as a retiree. However, setting your goals isn't just about knowing your financial needs. It's also important to define precisely when and at what age you want to achieve financial freedom.

Step 2: Choosing a private pension plan

To achieve financial freedom in retirement, private pension planning has established itself as a proven strategy. For long-term wealth accumulation, it is advisable to diversify risk broadly and invest in various asset classes. Which form of retirement planning is most suitable depends on your individual goals, wishes, and financial resources. Furthermore, the time until retirement plays a crucial role: the longer you can invest, the riskier and potentially higher-yielding your investment can be.

ETFs (Exchange Traded Funds) are an excellent way to achieve financial independence through private retirement savings. With an ETF savings plan, you set aside a fixed amount each month to build your wealth. ETFs offer manageable risk, and with a longer investment horizon of at least five, ideally ten or fifteen years, price fluctuations can be effectively offset. Furthermore, over a long investment horizon, the power of compound interest can be fully realized, leading to higher returns.

Other options for private retirement savings include:

Stocks and funds
Bonds
Real estate (no rental costs in old age, income from letting)
Classic private pension insurance or life insurance
Savings account, money market account and fixed-term deposit account

Important: These investments differ significantly in terms of potential returns, security, and liquidity. Which investment option best suits you therefore needs to be decided individually. We are happy to assist you with this decision.

Step 3: Determine the savings rate

The final step involves determining the savings rate for private retirement provision. The following information is important in this process:

The desired monthly net amount (difference between income and expenses)
Expected return
Inflation rate (e.g. 1.84 percent)
Investment period (from your current age to your desired retirement age)
Possibly the tax rate for withholding tax (on capital income)

With this information, financial advisors can calculate how much money you need to invest monthly to reach your desired net income.

An example:

Desired net amount	500.00 euros
Expected return	6.0 percent
Inflation rate	1.84 percent
withholding tax	25 percent
Investment period	37 years
Monthly savings rate	238 EUR

If €238.06 is invested monthly over a period of 37 years, this results in equity of €256,811. With an average return of 6.0 percent, as can be achieved with an ETF savings plan, this results in a final capital of €513,621. With this capital, taking into account capital gains tax and inflation, the desired net amount of over €500 can be achieved.

What happens if I don't reach my savings goal?

Many investors struggle to actually reach their savings goals. Either they have chosen the wrong investments or they cannot raise the necessary savings amount to achieve their desired target. In such cases, savers should examine whether they can reduce their expenses or increase their income.

Reduce expenses

Keep a budget and look for ways to cut back on expenses. Do you really need a subscription for every streaming service? Compare your insurance policies and check out alternative providers. This also applies to mobile phone plans, internet, and possibly landline connections.

There are also numerous ways to save money in everyday life. Instead of eating out during your lunch break, you can prepare a cheaper lunch yourself.

Moving to a cheaper apartment might be worthwhile. Also, keep an eye on your utility costs; lowering the room temperature by a few degrees or taking shorter showers can reduce your fixed expenses in the long run.

Increase income

The easiest way to increase your income is to ask your employer for a raise. If one isn't on the horizon, changing jobs might be worth considering. A side job, for example as a seasonal worker or weekend server, could also help.

Review investments

If you haven't sought comprehensive advice on your private retirement savings, choosing the wrong investment option could be the reason you're not reaching your savings goal. We often emphasize that the optimal investment always depends on your individual circumstances and goals! This means that your neighbor's private retirement savings plan might be well-suited for him, but completely unsuitable for you.

That's why we advise you to have your private pension plan reviewed by experts. Our BKC advisors will support you in this process. Together, we'll determine whether your investment strategy is right for you and how to invest your money according to your needs to achieve financial freedom in retirement. Schedule an appointment now and receive personalized advice. We're available both in person and online!