How to retire before 65?

Retirement is often a hot topic and can regularly be discussed at family dinners after a certain age, and especially following the pension reform proposed by Emmanuel Macron.

And it is understandable why:

- The number of divorces has exploded
- Artificial Intelligence will disrupt the world of work
- States are over-indebted
- Climate change
- The ageing of the population

All these reasons mean that in my opinion we should not rely solely on the state and that we should be as prepared as possible!

So, what is retirement?

The term retirement or pension refers to the paid leave of absence that a worker takes from his or her activities after fulfilling certain conditions set out in the social security law in order to benefit from social and/or private security.

The pension system in France and in the world.

In France, the pension system is mainly based on the pay-as-you-go principle, i.e. the current contributions of employees are used to finance the pensions of citizens who are retired at that time. The basic pension of private sector employees is supplemented by the use of the compulsory supplementary pension scheme ARRCO-AGIRC, which is also funded on a pay-as-you-go basis. We will see later on how the capitalisation system works.

The basic pensions of the general scheme are awarded by :

- The (regional) pension and occupational health insurance funds (CARSAT),

- The national old-age insurance fund of Ile-de-France for the Paris region,

- The general social security funds (CGSS) for the overseas departments,

- the CSS of Mayotte.

1 - Eligibility requirements

In France, there are a few conditions that must be met in order to retire and receive benefits.

Retirement age :

Retirement at 62 (legal age)

The minimum legal retirement age in France is 62 for people born on or after 1 January 1955.  To receive a full pension at 62, you must have accumulated the required number of contribution quarters, which is determined by the year of birth.

Retirement at age 65 or 67 (automatic full pension entitlement age)

From a certain age, the applicant's pension is calculated at the full rate, regardless of the number of quarters he or she has accumulated. This age varies from 65 to 67, depending on the year of birth and the applicant's situation.

Calculation of the pension (careers with affiliation to the general scheme only)

The amount of the pension is determined by three factors:

Basic or average annual earnings (AAS): average annual earnings are the gross earnings on which contributions have been paid. The AAS is calculated on the basis of the insured person's 25 highest earning years.

Payment rate: the maximum rate of 50% is reduced by a percentage determined by the difference between the number of quarters credited and the number of quarters required to benefit from the maximum rate, taking into account the individual's age and total insurance period. The most advantageous calculation for the individual is used. The minimum rate is 37.5%.

The total insurance period, including periods validated as insurance periods, is used to determine the rate of payment of pensions paid between the statutory minimum retirement age and the age of automatic entitlement to a full pension (between 62 and 67 for people born after 1 January 1955). The full rate of 50% is paid to people with a total insurance period of 166 to 172 quarters (depending on the year of birth), aged over 67 (for people born after 1955) or belonging to specific categories (people unfit for work, those with a permanent disability rate of at least 50%, disability pension claimants, mothers with a working job or war veterans).

The total period of insurance, which is used to determine the rate of pension payment, includes both periods of contributions paid to the various basic schemes (see Article L. 351-1 of the Social Security Code) and periods of time spent out of work due to illness, maternity, disability, industrial accident, military service, unemployment, etc.

Early retirement pension

In certain circumstances, workers can retire before the statutory age without the rate of their pension being reduced. This applies to pensions claimed on the following grounds:

Retirement for permanent incapacity or arduous work: A worker who retires because of permanent incapacity for work due to an occupational disease or an accident at work can claim a full pension at age 60, regardless of the length of insurance. Several cases are possible depending on the degree of incapacity of the worker:

The worker can claim an occupational disease pension with a permanent work disability of at least 20%.

The worker can claim an occupational disease or accident at work pension with a permanent work incapacity rate of at least 10% and less than 20%. A worker can claim a retirement pension on the basis of permanent work incapacity if :

He or she has been exposed to work-related risk factors for at least 17 years, and his or her disability is attributable to his or her work.

People with a long career can retire at age 60 or earlier if they have accumulated a minimum period of insurance and contributions and started working at a very young age. The minimum insurance period required varies according to the year of birth, the retirement age and the age at which the pensioner started working.

Disabled people can retire between the ages of 55 and 59 provided they have a permanent disability percentage of at least 50% or have official disabled worker status before 31 December 2015. They must also have a certain length of insurance (including a minimum length of employment-related contributions) during the period when they were disabled. The minimum insurance period required varies according to the year of birth and the expected retirement age.

Reduced rate pension (rate reduction)

People who wish to receive their pension but who do not have the required length of insurance to receive a full pension (50%) will receive their pension at a reduced rate. The percentage reduction is determined by the number of missing quarters and the year of birth of the applicant: 1.25% for people born from 1953 onwards (i.e. a reduction of 0.625 per missing quarter). The pension will continue to be paid at the reduced rate from that point onwards.

Increase in pension rate (for those who continue to work beyond 62)

People who have accumulated the insurance period required for a full pension at the age of 62 (statutory age) and who continue to work are entitled to an increase in their pension. The applicable rates differ according to the date on which these periods of employment were accumulated. For quarters completed after 1 January 2009, the increase rate is 1.25% per additional quarter.

So that's a bit of theory to understand how it works in France, as I said at the beginning of the video, now let's try to understand how the funded system works.

Funded pension: how does it work?

In the funded system, employees save to finance their own retirement when the time comes. They are then free to decide how much of their income they put aside each month and where they put it. This saving can be done through the company, the bank or a private pension fund. When you retire, you get the money from what you saved during your working life.

This is the case in the majority of Anglo-Saxon countries where the pension system is based on the capitalisation system and managed by pension funds such as CPPIB in Canada or Sampension in Denmark, which are themselves generally accompanied by asset managers such as BlackRock. The money collected is invested in different assets such as real estate to produce returns.

How to retire before 65

The funded system also exists in France in a certain way.

Each employee contributes to the pay-as-you-go system up to a maximum of 320,000 euros gross per year. Above this level of salary (which should be lowered to 120,000 euros after the reform), it is no longer possible to open additional pension rights. In order to guarantee a retirement income comparable to one's standard of living, it is therefore necessary to invest on one's own via other investments in the hope of earning as much as one's salary.

This is also the case for freelancers, self-employed people and other liberal professions who must prepare themselves as well as possible!

Why is it so important to plan?

So that's why I think it's necessary to try and manage your own retirement, to be in charge and not necessarily rely on the state or asset managers, although that can be good for freeing your mind of course, but it's good not to put all your eggs in one basket. Retirement planning is crucial because it allows you to avoid running out of money in retirement. Your plan allows you to calculate the rate of return you need from your investments, the degree of risk you will take and the type of income you can safely withdraw.

Planning your retirement as early as possible by investing in real estate, the stock market or other investments as I talk about in my other videos can therefore create freedom and peace of mind and perhaps by investing intelligently you will see that you won't necessarily have to wait until 62! It is simply a question of making the most of your time, optimising taxes. In addition, your various investments produce gains which in turn produce gains, creating a compounding effect that does not exist in an ordinary savings account.

So, to sum up, here are some of the benefits of planning and anticipating your retirement in my opinion:

Benefits of saving and planning for retirement

1/ Having peace of mind

Did you know that more than half of the world's population is more worried about running out of money for retirement than dying? This causes unnecessary stress in their lives, which can be avoided by starting to invest early to acquire assets that will generate income for your retirement.

If you know how much you need to save, invest and go into it with a plan, you will have more peace of mind and feel better knowing you have a plan.

2/ You will make better financial decisions.

Many people don't notice that most of the financial decisions we make have long-term consequences and impact. So one of the benefits of retirement planning is that you can look at the financial decisions you make in a more concise way and know how to act in relation to your livelihood. When you plan for retirement, you know what you can and cannot spend, and you learn to distinguish between good investments that will benefit you in the long run, and bad investments that will harm your personal finances later on.

3/ Have a vision for retirement.

Having a vision of what you want your retirement to look like is one of the many benefits of early planning. This goes back to the famous "WHY" that I've already mentioned in my videos, for my part I wanted to travel, and not necessarily wait until 65 or older or I might have a little less energy...

4/ Prepare for health expenses.

Preparing for health expenses is often overlooked, but it is something to keep in mind. Health care can be very expensive, even if you have insurance, and as we age we will need more and more long-term medical care, so it is essential to be prepared. The advantage of anticipating and trying to retire early may be that you will have the opportunity to take better care of your health in your daily life, for example by not sitting at a desk all day or by doing more sport.

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