What's the suggested pension savings amount needed in Denmark?
As Denmark continues to raise its retirement age, it's essential for individuals planning for retirement to understand the implications and adjust their savings strategies accordingly. Here's a breakdown of what you need to know.
Rising Retirement Age and Pension System
Denmark has recently increased the official retirement age to 70 for individuals born after 1970, with the change phased in by 2040. While the average retirement age currently hovers around 64, this number is expected to rise as more people continue to work longer.
Life Expectancy Considerations
Life expectancy in Denmark is on the rise. Men's life expectancy has increased by about five months, and women's by 2.6 months, year-over-year. This means that you may need to plan for a retirement period potentially lasting 20 years or more after leaving work.
Pension Contribution Rates
Employer and employee pension contributions often range from 15% to over 18% of salary, depending on occupation. These contributions fund occupational pensions, which, along with the public pension (currently around 7,198 Danish crowns/month), form the basis of retirement income.
Estimating Savings Needed
Given the public pension and mandatory occupational pensions cover a part of retirement costs, any shortfall towards your desired living standard must be covered by personal savings. To estimate the needed savings, follow these steps:
- Calculate your expected annual retirement expenses to sustain your lifestyle.
- Subtract expected pension income (public plus occupational).
- Multiply the remaining annual funding need by your expected retirement length (life expectancy minus retirement age).
- Adjust for inflation, investment returns, and taxes.
Impact of Longer Life Expectancy
Longer retirement periods require larger savings buffers to maintain lifestyle. For each additional year of expected life, plan to cover about 5% more of your annual expenses in saved capital, assuming a 4-5% withdrawal rate.
Working Longer vs. Saving More
Denmark’s policy to raise retirement age to 70 aims to reduce pension system strain due to population aging. Delaying retirement helps accumulate more pension benefits and shortens retirement savings duration. Retiring earlier increases needed private savings substantially.
In summary, to maintain your living standard after retirement in Denmark, you should:
- Estimate your desired annual retirement spending.
- Subtract your expected public and occupational pension income.
- Multiply the shortfall by expected retirement years based on your planned retirement and projected life expectancy.
- Adjust these calculations considering the state retirement age trends (moving toward 70) and longevity increases.
- Plan savings and investment strategies accordingly to cover any gaps, especially if retiring before the state pension age.
Because personal circumstances vary widely, consulting with a Danish financial advisor or pension expert who can account for your employment history, pension entitlements, and personal goals is recommended for precise planning.
Camilla Schjølin Poulsen, an economist with Danish pension fund PFA, suggests that if a person feels healthier than average, they should consider saving up to cover even more years in retirement.
If you're currently 67 years old, you can expect to receive the state pension for 22 years. However, keep in mind that the current retirement age for Denmark's state pension is 67, but it will gradually increase to 68 in 2030 and to 69 in 2035. People born after December 31st 1970 will have to work one year longer than earlier generations to become eligible for the state pension.
If you expect to live to the age of 90, you will need pension savings of 4 million kroner by the age of 67. It is recommended to take an interest in your pension throughout your life, but by your fifties and sixties, you should be actively thinking about it and adjusting savings if necessary.
Today's 67-year-olds have an average lifespan of 17 years for men and 19.5 years for women.
In light of Denmark's rising retirement age, it's important to stay informed about personal finance news and understand the implications for one's savings strategies. The increasing life expectancy might demand significantly larger pension savings for a retirement period potentially lasting 20 years or more.
Moreover, considering the ongoing art market trends and the growing interest in personal finance, it's essential to invest wisely and diversify your assets, which may include art, to ensure a comfortable retirement.
