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Combining pension and work can take a heavy financial hit.
The 2011 pension reform made it possible to obtain an old-age pension from the National Insurance Regime from the age of 62 and freely combine retirement with work.
This means that you can receive a pension in addition to the full salary of the employer and thus get a really hefty salary increase. No wonder there are so many who take advantage of this tempting offer, too. it is financially beneficial for many.
Early retirement pension
- The retirement of the old-age pension can begin from the month after the age of 62, if you have a high enough income, that is, the pension you will receive when you turn 67 must correspond to at least the minimum pension level.
- You can get a full pension or just a part: 20, 40, 50, 60 or 80 percent.
- It can continue in whole or in part after having obtained a retirement pension. The pension payment is not reduced by earned income.
- Even with a full retirement pension, you can also earn whatever you want with it; there may still be other rules for combining occupational pension with work.
- The online service Your pension provides you with an overview of your pension.
- You can continue to earn a pension if you continue to work at the same time that you get a pension; this applies up to and including the year you turn 75.
Source: nav.no
But the plan is not without its dangers, notes pension economist Øyvind Røst at KLP, one of the country’s largest pension administrators. He cautions that good finances in the sixties can take a big bang later in life.
– If you spend a lot of money in the period with both salary and pension, you run the risk of ending up in the trap of luxury before going to the grave, he tells Nettavisen.
This also shows a recent report from Statistics Norway (see data box). It shows that those who take a pension and continue working have approximately the same development in wealth up to age 69 as those who waited to take out a pension.
In other words: a higher total income, both in the form of salary and pension, has strangely not led to greater wealth.
– This is surprising, since this group has received both salary and pension for a longer period, says Røst.
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– May have very low income
The Statistics Norway survey
- Statistics Norway has also analyzed the current value of pension rights earned so far in 2017, for the cohort born in 1949, which is called pension assets.
- While those who started receiving an old-age pension in combination with an occupational activity in 2012 had NOK 5.1 million in average pension wealth in 2017, the average of workers who did not choose to collect an old-age pension in 2012 was NOK 6.1 million.
- Part of this difference may be due to the fact that those who have combined pension and work have withdrawn part of their pension assets before 2017, estimates Statistics Norway.
This may indicate that those who mix pensions and jobs have a very high consumption, Røst believes:
– This indicates that those who retire early, spend or give a lot of money to heirs or charitable causes. Taking out a pension early, around age 62, may make sense to some, but there are probably a good number of people who spend too much money during the salary and pension period as well. And that means their income can get uncomfortably low as they get older.
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– Many do not know this
Røst assumes that many people are not aware of this risk when they obtain an early retirement pension. Many people in this age group who are retiring and continuing to work need advice to save more, he believes.
– If you choose to retire early and continue working at the same time, you should save a good deal of money. Save for the part of old age where you have no salary, but have plenty of free time. Remember that obtaining a pension early results in a lower annual pension income for life, which can be financially demanding if you live long.
Also read: If you follow these tips, you can save thousands of crowns in taxes in 2021, even if you are out at the last minute.
Sooner or later?
Whether it’s going to pay to retire early or wait depends on your health, simply:
– You don’t know how long you will live when you are 62, but you have information about your own Health.
If you’re in good health and working when you’re 62, it’s probably best to wait. If you have any serious diagnoses or reason to believe that you will live less than your cohort, it may be a good idea to withdraw your pension starting at age 62, says pension economist Røst.
– Simplified, it is the case that the pension rules favor late retirement from the pension while the fiscal rules favors early retirement for anyone with low to ordinary income, he says.
Since deferred withdrawals result in a higher annual pension for life, postponing withdrawals actually means that you insure yourself against bad finances at the end of your life, claims the pension economist. Then point out that the pension also grows more while you are at work:
– The pension is regulated with the salary increase until retirement begins. After retirement, the pension is adjusted with a salary growth minus 0.75 percent. One year doesn’t matter much, but if you put off retirement, say, five years, this will have a significant effect on your annual pension.
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– Then you fall into the trap
For all those who start early retirement from the NAV, the consequence is that the annual lifetime old-age pension will be lower, because when they start early retirement they choose to distribute the old-age pension over several years, says Alexandra Plahte, lawyer and director of Formuesforvaltning Pensjonsrådgivning AS.
– However, this does not mean that the total pension is necessarily lower, says Plahte.
This is affected by a number of individual factors, including actual life expectancy relative to estimated life expectancy, and regulation relative to extra performance, Plahte emphasizes.
But that early consumption of the pension provides poorer finances in later retirement years, obvious, you think.
– If you continually use your early retirement pension without being able to pay it, it goes without saying that you have opted for what Røst calls the “luxury trap”, says Plathe, who is not under the impression that this applies. to most of those who combine early retirement with work.
– Most of the people we know who decide to start abstinence early have made a conscious decision after a general evaluation of several different factors. What is correct for one does not have to be correct for the other. The most important thing is that anyone considering early withdrawal makes an individualized assessment of the advantages and disadvantages of early withdrawal and, of course, both in the short and long term.
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– Make a plan
Choosing early retirement shouldn’t just be the result of wanting as much as possible as soon as possible, Plahte emphasizes. Here are some typical things that the pension expert believes to consider:
- Flexibility
- Liquidity
- Estimated life expectancy
- Deductible nursing home
- Survivors
- Regulation
- Return
- Taxes included. tax risk
- General private finance
Røst has clear advice for those planning their retirement:
– Summarize your income for each year ahead and make a plan for when and how you can use or possibly afford to give away money in old age.
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