Even if You Are Retired, Don’t Stop Optimizing Your Pension Plan

When reaching retirement, many people consider their financial planning complete. The pension plan starts to be considered a “deposit” from which money simply needs to be withdrawn. However, this phase can be just as important as the accumulation phase, and a bad decision—or failing to make decisions—at this point can have a very significant tax and financial impact.

Below, we will discuss some general financial and tax considerations that may be useful. The latter may not apply to all situations and, in any case, should be confirmed with your tax advisor.

Retiring Does Not Mean Withdrawing Everything at Once

One of the most common mistakes is withdrawing the entire pension plan as a lump sum in the first year of retirement. This often concentrates a large amount of income in a single tax year and pushes the saver into higher personal income tax brackets.

For example, a person receiving a public pension of €22,000 per year who withdraws €150,000 at once from their plan may find that a significant portion is taxed at high marginal rates. If, instead, they spread withdrawals as periodic payments of €15,000–€20,000 per year, the tax impact can be significantly reduced.

Often, combining partial withdrawals as periodic income is much more efficient. And the smaller, the better. This is because amounts withdrawn from a pension plan are taxed as employment income, not as savings income. Therefore, they must be coordinated with other income sources: public pension, rental income, dividends, or others.

Planning when and how much to withdraw each year helps smooth the tax burden and improve long-term net results.

Is Your Pension Plan Optimized?

As long as it has not been fully withdrawn, the pension plan remains invested. Therefore, even in retirement, achieving good returns remains important—perhaps more than ever.

It is common to think that once retired, one must automatically become very conservative. This may be appropriate if significant amounts must be withdrawn in a few years. But that is not always the case. In some situations, when accumulated capital is substantial, a pension plan could generate the required income without having to touch the principal, or that income could represent only a small portion of the accumulated capital.

In such cases, the pension plan does not have to be extremely conservative.

Therefore, especially in these cases—but also more generally—it remains important, even in retirement, to review two key aspects:

• whether the risk profile level is appropriate for your situation
• and, in line with this, whether the returns obtained are optimal and whether the costs paid are reasonable. This applies in all cases.

You Can Also Transfer Your Plan, Even as a Retiree

Related to the previous point, you are not required to keep your current pension plan after retirement if it is not optimal.

It is widely known that pension plans can be transferred between institutions without tax impact. However, it may go unnoticed that this is also valid during retirement—even if withdrawals have already begun. This allows you to continue optimizing your plan, in line with what was discussed above, if the return–risk relationship is not appropriate or if costs are high.

We remind you that at inbestMe we offer a wide range of pension plan portfolios with 11 risk profiles covering all needs, with very low costs and highly optimized returns. As an example, the average investor profile at inbestMe (profile 7) has achieved a 6.5% annualized return (CAGR).

Whether you already have another investment portfolio with us, you can open a pension plan portfolio and transfer your plan if it is not optimized. If you require assistance, do not hesitate to contact our customer service team (cs@inbestme.com).

Important note: if the pension plan is an occupational plan, there may be limitations on transferring it to another pension plan. In some cases, such transfers are only possible if you stop being an employee and are not yet retired.

Plan Your Estate

Knowing whether your pension plan is optimized is particularly relevant when the retiree does not need it to supplement income and can consider it as a long-term or estate planning tool.

In these circumstances, your pension plan may already be mentally or explicitly allocated in your will to your heirs.

This has two implications:

• First, the investment horizon of the pension plan extends beyond your lifetime (15 or 20 years or more), so it is essential that the risk profile align with this long horizon. In this case, the points discussed in the optimization section apply more than ever.
• Second, since it may form part of an inheritance, it is advisable to analyze the advantages and disadvantages for heirs with other estate assets. Each case is different, so consulting a tax expert specializing in inheritance is recommended.

In Some Cases, You Can Still Contribute

Even if you are already receiving a retirement pension, it is possible to continue contributing to pension plans, although such contributions are usually no longer tax-deductible for the retiree.

They may still make sense, for example, in planning for a spouse or for estate planning purposes.

It is not a universal solution, but it is an aspect worth reviewing together with the previous point with your tax advisor.

Conclusion: Even in Retirement, Maximize Your Pension Plan

Retirement is not the end of financial planning but a new stage of it.

A poorly withdrawn or poorly invested pension plan can lose much of its advantage. A well-optimized one can complement your public pension, allow for additional pleasures (such as travel), or even become an efficient estate planning tool.

Even if you are retired, you can still get a great deal out of your pension plan.