Life after retirement
The years after retirement can be a time to pursue your interests and enjoy the rewards of your working life. Some people want to change as little as possible, while others dream of travelling, spending more time with family or pursuing hobbies.
Income often changes when people reduce their working hours or retire. It is important to consider in good time where your income will come from, when different entitlements become available for disbursement and how payments can be structured.
Start with the big picture
Your financial flexibility after retirement may be based on several factors:
- Pension benefits from mutual insurance schemes
- Private pension that is part of mandatory pensions
- Supplementary pension savings
- Payments from the Social Insurance Administration
- Other savings and assets
The combination of these factors has a great deal to say about your disposable income after retirement and it helps to consider the overall picture rather than focusing on only one part of your savings.
Mandatory pension savings are the foundation
All employees and self-employed individuals are required to contribute to a pension fund from the age of 16 until age 70. Generally, the employee contributes 4% of salary and the employer 11.5%, for a total of 15.5%.
Mandatory pension savings may be divided between mutual insurance and private pension savings. Mutual insurance provides a monthly pension for life and may also provide benefits in the event of disability or death. The private pension, on the other hand, accumulates in the name of the fund member, is inheritable and paid out in accordance with the rules of the selected investment plan.
Four investment plans
At Íslenski lífeyrissjóðurinn, you can choose between four investment plans. These determine how mandatory contributions are divided between unrestricted private pension savings, restricted private pension savings and mutual insurance.
The selection impacts:
- How high a portion of the savings become private pension;
- When disbursement can begin;
- The length of the disbursement period of the private pension;
- And when disbursement of the life-long pension from the mutual division begins.
The image shows how each investment plan spreads income across different periods of your life. Unrestricted private pension savings can be accessed from age 60, restricted private pension savings are paid out later and mutual insurance provides monthly payments for life.
A larger share of private pension savings can provide greater flexibility and create an inheritable asset. Conversely, a higher proportion of mutual insurance may provide greater lifelong benefits. No single option suits everyone, so it is important to choose based on your circumstances, goals and other savings.
Supplementary pension savings can provide greater flexibility
Supplementary pension savings are generally available for withdrawal from age 60. Many people use these savings to supplement lower income during the first years after retirement, reduce their working hours or create flexibility to retire earlier.
You can structure disbursement according to your needs and spread them over a specified period. However, it is important to consider withdrawals in the context of other income, taxes and pension payments.
Rights remain even though you change funds
It is common for people to have pension entitlements in more than one fund over the course of their working lives. When you change pension funds, accrued mutual-insurance entitlements remain with the previous fund and are paid out when the time comes.
Supplementary pension savings and other private pension savings can, however, often be transferred between custodians. It is advisable to review pension fund statements regularly and make sure that all entitlements are included.
Keep track of your pension
Customers of Íslenski lífeyrissjóðurinn can view their rights and savings balance in Landsbankinn's app and online banking. There, you can get an overview of your savings and monitor developments.
You can also view contribution and investment options on the fund member website, in Landsbankinn's app and online banking. You can change options for future contributions, but the change does not affect savings or entitlements that have already accrued. When you start to near retirement, it becomes especially important to review your position and make sure your choices reflect your goals.
Good advice pays off
The selection of investment plans and disbursement options can impact your income over a long period. Before taking a decision, it helps to get a comprehensive overview of pension entitlements, other savings and potential income all taken together.
Landsbankinn’s advisors are happy to assist you in gaining that overall picture and review available options with you.
