Retiring earlier means that you stop working before the agreed retirement date. Perhaps at the same time as an older partner. Early retirement means more free time; to travel, for a hobby or for children and grandchildren. How will early retirement affect your pension income? We list a few points worthy of consideration.
How to arrange it
Talk to your employer
If you wish to stop working earlier, your employer may offer you a scheme until your state pension age. This option is available until 2025 and falls under the Early Retirement Scheme (RVU), part of the Pension Agreement. The payment is capped at € 1,847 gross per month. This scheme allows you to stop working to retire from 3 years before your state pension age. Or less if you so wish. So check whether your employer offers this scheme. It is important that you and your employer agree on the decision together
Bringing your pension forward
Check with your pension provider(s) about the possibility of bringing forward your retirement date. You can see what you have accrued in pension and make your own calculations at mijnpensioenoverzicht.nl. You will then know approximately how much pension income you can expect if you take your pension early.
Using your own money
If you have savings, you can use them to bridge the period until your state pension and your personal pension come into payment. This will cost you at least tens of thousands of euros. Do the math: for 3 years of early retirement and € 2,500 to live on per month, you need a total of 12 months x 3 years x € 2,500 = € 90,000. So, a lot of money. And remember: doing fun things in your extra leisure time could mean you spend more than you do now. It’s good to take this into account. Another thing that’s good to know: your own money is not income for tax purposes. This means you could no longer be eligible for deducting your mortgage interest payments. Think about this when making your decision.
Have you accumulated extra leave hours at your work? Since 2021, you can save up to 100 weeks of leave tax-free. In agreement with your employer, you can use that accrued leave to stop working before you actually retire.
Maybe it will not be possible for you to retire earlier, but perhaps you will be able to work less. Or, you may like to have more free time, but you still enjoy your work too much to stop altogether. Part-time retirement could be a solution. With part-time retirement, you have part of your pension come into payment. You continue to work, but for fewer hours per week. You will pay for your extra time off out of your pension pot. Check your pension scheme rules to see if your employer offers this option..
Things to consider
As much as you would like to retire earlier, not everyone has the financial means to do so. Retiring earlier will affect your pension income. So it is good to think about a few things beforehand:
You will accrue less pension
Stopping work one, two or three years earlier may not seem like much in an average working life of 40 years. But stopping work earlier has financial implications. Your pension income will be lower. If you retire two years earlier, you will also accrue two years less pension. Each year you stop working earlier will cost you around 6-8% of your expected pension. Whether you can make up this difference depends on your financial situation, any accumulated funds and your lifestyle.
You will need to get by for longer with a lower amount
Pension is paid for life. If you stop working earlier, the period over which you receive pension income will be extended by the number of years you stop working earlier. While you are already accruing less pension. Your pension income will thus be lower on balance.
You will pay more tax
If you stop working earlier, chances are you will not yet entitled to state pension. The income tax you pay includes a premium for your state pension until you reach your state pension age. You will only stop paying this once you reach your state pension age. This will leave you with less net pension income per month than if you retire when you reach your state pension age.
Effects for partner's pension
Partner’s pension is a benefit payable to your partner in the event of your passing. If you retire earlier, your partner's pension will also be affected. It will be lower. It is good to understand and be aware of this.
Always discuss any plan to stop working earlier and maybe take early retirement with a financial adviser.
Pension at Zwitserleven? View the Pension Planner
If you wish to know if you can retire earlier, or it would actually be better to postpone your pension, the Pension Planner in MijnZwitserleven can give you insight into your financial future in just a few steps. Either for yourself, or for you and your partner together. That way, there will be no surprises later.
Discuss your wishes with an adviser
The choices you make now for your pension income are made for the rest of your life and your partner’s life. You can no longer change a pension that is in payment. This is why it is important to seek advice from an independent financial adviser when making decisions. They will look with you at your overall financial situation, which includes all your pension pots, as well as other asset components, such as a home of your own or savings.
An adviser can also help you determine how much money you need to live on. And the minimum net pension income you need for this. An initial orientation meeting with an adviser is often free of charge.