You may have heard about France’s decision to increase its state retirement age from 62 to 64.
French people have not been happy about this, with strikes and protests around the country.
But the question is: how much would they receive in retirement and after how many years?
People retiring in France receive an average net pension income of €1,400 a month (£1,234).
However, to claim the full state pension, they’ll need to have worked for at least 42 years.
You can reach this same level of monthly income in much less time by investing into an ISA.
By investing £1,000 a month into an Index Fund, you may be able to retire in just 12 years.
In this article, I start off by talking a bit about the French pension system: its pros and its cons.
I then talk about how you can achieve this same level of income and even retire much earlier.
Finally, you can play with these figures for yourself by using the MYB early retirement calculator.
Tell me About the French State Pension
Similar to other European nations, the French state pension is based on your career earnings.
There are 2 types of compulsory pensions (apparently, most people don’t save privately).
The state pension pays a maximum of 50% of average earnings, based on your best 25 years.
Payments are based on number of years worked and how much was paid in contributions.
Contributions are in the form of social security contributions by employees and employers.
To qualify for the full state pension, French workers must have worked for around 42 years.
They must also be of the minimum pension age, which is currently 62 years (not for long).
If they wait to 67, even if they haven’t made full contributions, they’ll receive the full pension.
The new state retirement age is 64 years and they’ll need to have worked for 43 years.
But the question is: how much would they be receiving to make it worth working for 43 years?
How much Can they Receive after 43 Years?
As mentioned, a maximum of 50% of average earnings makes up the French state pension.
However, after doing some digging, there is a limit to how much you can have: €39,732 a year.
This is equivalent to £35,158 a year/£2,930 a month, which is not a bad state pension to have.
However, this is assuming you worked for 42 years and had an average salary of €80,000/year.
I’d be surprised if people actually reach this – they started working at 20 and haven’t stopped.
So how much do people actually receive in retirement? Thankfully, we have some recent data.
According to a recent study, the average net pension income in 2020 was €1,400 a month.
This is based on 16.4 million French retires – as you can see, nowhere near £2,930 a month.
That means having worked for 42/43 years, this is how much most people expect to receive.
What if there was a way to accumulate this level of income in a much shorter period of time?
Time for Some Early Retirement Calculations
To see how long it would take to reach €1400 (£1,234)/month, let’s assume that’s our target.
It may not actually be your target, but let’s say that’s the minimum you would need to retire.
To have a monthly income of £1,234, that means that we’d need a yearly income of £14,808.
To figure out how big our pension pot would be, we need to decide on our withdrawal rate.
With a withdrawal rate of 5%, that means our pension pot would be £14,808 x 20 = £296,160.
Next, let’s assume that we’re investing into an ISA i.e. we’d pay no taxes when we withdraw.
Let’s also assume we’re invested into a global index fund with average returns of 10% a year.
From there, let’s assume that this index Fund also pays out dividend yield at a rate of 1.66%.
Finally, let’s say you’re starting out with a pot of £5,000 and you contribute £1,000 a month.
Based on these assumptions, how long would it take to reach an income of £1,234 a month?
How Long would it Take to Achieve this Income?
Based on the above calculations, it would take you just 12 years to achieve £1,234 per month.
Obviously these are all assumptions but this is to give a rough idea of how long it would take.
That means that you may reach this target in more than 12 years, or in less time than that.
There are things we can’t control like stock market returns (some years will be good and bad).
However, as you can see, it’s safe to say that it would take much less time than 43 years.
Once people start investing privately it won’t matter if the French retirement age is 62 or 64.
If they start investing at 30, they could retire by 42 on the same level of income as of age 64.
However, this is assuming that they can invest into their own equivalent of an ISA in France.
With an ISA, you can withdraw money any time and without paying any taxes on withdrawal.
Once you do reach retirement age, you can then top of your income with the state pension.
You Get to Decide your Own Retirement Age
Having looked at the above calculations, you may be thinking: I can’t invest £1,000 a month!
That’s totally fine, how much can you contribute per month sustainably over a long time?
Once you figure this out, plug this into the Mind Your Business Early Retirement Calculator.
Maybe you think you can contribute £500/month. That means it would take 17 years instead.
Or maybe your starting pot is £10,000. That means that it would take you 11 years instead.
Have a play around with the figures to see what would happen if you change the variables.
You may find a way to reduce this date to 10 years if you commit to investing aggressively.
Or you may prefer to increase it to 20 years by investing sustainably over the long term.
Either way, do what works for you and update your progress every year.
So even if France decides to increase its state retirement age, it won’t affect your retirement age.
If you’re interested to find out more about early retirement, check out: Quit Like a Millionaire.
In the book, the authors talk about how they were able to retire early in their thirties!
To find out more on investing and retirement, check out my investing and retirement articles.
I talk about early retirement strategies, which funds to invest in, and which accounts to have.
Are you on your way to early retirement? Are you investing? Let me know in the comments!
One Response
Very instructive, thank you!
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