Camille Van Vyve
09 Apr 2024
Investing in your 40s: destination pension
In your forties, at the height of your professional career, you may have already bought and partly paid off your house or apartment… What’s next? Well, you could have thought of this earlier, but it's high time to worry about your pension.
Your income has increased… and so have your expenses
Turning forty is usually a pivotal moment. Your income is probably higher than ever, but at the same time, you may also have a mortgage to pay off and one or more children to feed and raise. Let's say that the big decisions have been made and it's now time to establish a good long-term savings strategy.
Do the math
Consider the facts: how much do you earn? How much do you spend? Will your level of spending increase in the next few years? Maybe you're paying for childcare right now but those amounts may be swelling your savings soon. How much money do you set aside for savings, investment, your pension? Establishing a long-term plan inevitably requires a small balance sheet.
Consolidate your pension plans to get a clear view
One of the most complicated task is to have a clear view of the level of your future pension. If we sum up the legal pension (the level of which is not easy to anticipate), any group insurance contracts that can be distributed among different employers and insurers, with sometimes different conditions, pension savings and personal savings…Few manage to calculate their future pension accurately. The free easyvest app allows all Belgians (clients and non-clients) to consolidate all their pension data in just a few clicks. Test it! You may be surprised with the result.
It's now or never to invest
Whether we like it or not, the evolution of demography and public finances in Belgium is putting the legal pension system under pressure. Even by contributing to the 2nd and 3rd pillar of pensions, you will probably not reach a level of pension that is sufficient to maintain your current lifestyle after 67 years. Personal savings are therefore essential to achieve your goals. At 40, you have 27 years left before the legal retirement age: an investment horizon long enough to invest mainly in stocks, at least initially.
Make up for lost time
Thanks to compound interest, savings invested in the long term grow exponentially. If you start investing €5.000 per year at age 40, you will have accumulated a capital of €400k at retirement… i.e. half as much as the one who would have started at age 30, and three times less than the one who would have started at 25 ! But by starting later, with your major expenses already behind you, you may be able to make up for lost time by investing larger sums. Feel free to play with our online simulator to determine how much you should invest each month to reach your pension goals.
Index management is more efficient
In addition to its simplicity and its low cost, the index approach recommended by easyvest has demonstrated over the last ten years a superior performance on average of 2,8% per year compared to similar active management funds in Belgium. The long-term impact of such a difference is potentially enormous: on an investment of €5.000 per year from 40 to 67 years old, this difference in return would translate into an additional gain of €150.000!
Do not prepay your mortgage loan
If your savings increase, there is probably one thing not to do: repay your mortgage loan early. Indeed, until recently, interest rates were extremely low, well below the current level of inflation... A monthly payment at a fixed rate is therefore a godsend for financing at a good price a property that increases in value. If your income continues to increase, your ability to save or invest will also increase.
Optimize your taxes
Taxation is another good reason for not wanting to pay off your mortgage loan too quickly. Depending on the Regions and the year in which you took out your loan, there are tax advantages linked to the financing of your own home in Belgium. You can also optimize other tax envelopes: subscribe to a pension savings scheme for example, or if you are self-employed, a supplementary pension like CIPA, PIPA or FSP schemes.
Easyvest, your long-term partner
Whether it is to plan your pension or optimize your taxes, easyvest advisers are at your disposal to build the best possible investment plan, adapted to your situation. Our passive investment strategy, which consists of following the overall market rather than trying to beat it, has empirically proven its long-term performance. What's more, at 40, you probably have a lot of other things to do than follow the markets daily to actively manage your portfolio... Opt for the simplicity, transparency and performance offered by easvyest!
Read the other articles in the “Investing by age” series: investing as of 1 year old, investing in your 20s, investing in your 60s and investing in your 70s.