What's the best way of saving for your retirement, and how much should you save?

Belgians are concerned about their pensions. No fewer than 70% of them are unsure whether the state pension system is sustainable, and the proportion rises to 80% among people in their 30s. These figures come from a Profacts survey commissioned by BNP Paribas Fortis. So it's not surprising that two in three Belgians want to know how much money they need to save in order to maintain their lifestyle in retirement.

"There's no need to worry about the future of the pensions system," says Koen De Leus, Chief Economist at BNP Paribas Fortis. "You'll still receive a pension. We can ensure that our social security remains solvent fairly easily if there are more of us in the workforce. Governments are working constantly on this, although they should probably step up the pace. So I don't have any real concerns in this respect."

What kind of pension will you receive?

However, your pension won't be as large as your final salary. "To maintain your lifestyle in retirement, you need to have built up a nest egg, the amount of which will vary between people," explains Koen De Leus. "To start with, not everyone receives the same state pension. Public-sector workers receive larger state pensions than private-sector employees, who in turn receive larger pensions than self-employed people." So you need to have an idea of how large your state pension will be, and the mypension.be website is a useful tool for this.

Once you know what your future state pension is likely to be, you can calculate how much more you will need to maintain your desired lifestyle. This is where the second variable arises," says Koen. "Not everyone has the same lifestyle or wants the same things in life. If you want an extra €2,000 per month on top of your pension, you need to build up a savings pot of €500,000. That's not something everyone can achieve."

How to boost your pension income

"There are several ways of building up your savings," explains Koen. "For employees, there is the "second pillar", a supplementary pension arranged by the company you work for. There is also the "third pillar", which is a retirement savings plan that provides you with tax advantages. This allows you to invest around €1,000 per year in a pension fund. You can expect an average real return of around 3% over the long term. So if you invest €80 in a retirement savings plan every month from your 25th birthday, after 40 years you will have a pension pot of €77,000.

If you can afford to put aside more than this for your retirement, it's best not to leave the money lying around in a savings account," says Koen. "Savings accounts are currently paying interest of only 0.11%. Taking into account inflation, this means that money held in these accounts is losing value every year. If you put €100,000 into a savings account 10 years ago, that money is worth only €90,000 in real terms today. The alternative is to invest. This requires a strategy that suits your age and risk profile. As a rule of thumb, the proportion of your portfolio made up of shares can be 100 minus your age. So a 25-year-old could have 75% of his or her savings in shares, whereas for a 50-year-old the figure would be 50% at most."

Start as soon as you can

According to Koen De Leus, it's never too late to start saving for your retirement. "Someone who starts saving at 30 will need to save a third less than someone who starts at 50 to build up the same nest egg. In the same way, if you retire at 60, you'll need a larger sum than if you work until you're 65 to achieve the same income. By taking a long-term approach, you'll also be less exposed to stockmarket fluctuations. Some years, share prices can fall by 20%, which can be painful," Koen explains. "But if you invest a little every month in a fund, this smooths out the peaks and troughs and you'll pay the average price over the long term."

About Ask Your Bank

At BNP Paribas Fortis, we want to help you gain a greater understanding of money matters, which is why we asked more than 1,000 Belgians what their main money-related questions and concerns are. With the Ask Your Bank series, we aim to make your life easier by addressing those matters in a fully transparent way: another example of Positive Banking.