6 key actions to prepare for your self-employed retirement

On average, the self-employed receive a lower pension than employed retirees (€1,230 for the former, compared to €1,430 in net income per month for the latter) *. Indeed, the self-employed often have more difficulties in preparing for a secure and advantageous retirement: period without mission, higher taxation, irregular income, etc. So how can you guarantee a comfortable retirement if you do not contribute the 43 annuities required to obtain a full pension? What are the solutions to benefit from a pension supplement? In this article, we have listed some possible actions to secure your old age.

Summary

1. Find out about current legislation

2. Choosing the right legal status

3. Building a cash fund

4. Set up additional retirement savings

5. Optimizing your taxation

6. Diversifying your sources of income

1. Find out about current legislation

Are we going to retire like our seniors? With the current reform, this is an issue that is under debate. To be up to date on the subject, it is necessary to stay informed of legislative and fiscal developments. In fact, your situation is likely to vary more or less strongly depending on the plan you are affiliated with.

The current reform involves many future changes: the retirement age, the number of quarters required for a full pension, the abolition of special schemes... In general, workers will have to contribute longer to qualify for an adequate pension. But in fact, there are particularities between legal statuses:

• The regime for self-employed workers (TNS) concerns sole proprietorships, micro-enterprises, EURL and SARLs whose managers are the majority. Under this regime, you contribute by points but your contributions may vary according to several parameters including your situation and the activity you exercise.
• The general social security system applies to self-employed persons with the status of assimilated employees including non-associated managers of EURL, minority or egalitarian managers of SARL and managers of SAS. Very often, this plan is preferred by the self-employed because the contributions make it possible to ensure a suitable retirement. This is also what pushes self-employed persons close to retirement to choose one or other of these statuses to be affiliated to this regime.

So stay alert to be able to take stock and do not hesitate to estimate the amount of your pension thanks to retirement simulators made available to you.

2. Choosing the right legal status

It is not always easy to choose the right legal status when starting out, while taking into account changes in your turnover. But the criteria for choosing are not limited to the immediate reduction of your taxation or the assurance of a long-term base of social benefits. Self-employed persons should also be aware of the impact of their choice of legal status on their retirement. In fact, your pension will be calculated according to your fiscal and social security contributions and you will therefore be affiliated to one or other of the schemes mentioned above (TNS or general scheme).

In the same way, it is essential to find out about the particularities of your situation and the impacts of your previous statuses. If you have already been an employee, you will have contributed part of your annuities to the general scheme. You will therefore need to identify the various pension funds to which you are affiliated in order to assess your situation. In this way, you can adapt and take measures to optimize the amount of your future pension.

3. Building a cash fund

Even before planning for retirement, advisors and wealth managers strongly advise building solid assets. As a self-employed person, you may be confronted with periods of inactivity, for example in cases where you are looking for a mission or you decide to “take” parental leave. With rare exceptions, the state does not provide any arrangements to support you during these periods. This often means a decrease or even an interruption in revenue. Except that these periods of inactivity will have an impact, sometimes not negligible, on the amount of retirement pension.

Also, to avoid these drawbacks, it is essential to build up a cash flow fund in case of financial difficulties. First, prefer to build precautionary savings, then you can consider building larger savings later on. And if your cash flow allows it, you can even buy quarters so you don't have to retire too late.

4. Set up additional retirement savings

The pension system is based on a three-pillar system, generally represented in the form of a pyramid. The first level constitutes the basis for retirement, that is to say the basic system, which is mandatory for all workers. Then it gets a bit complicated. The second pillar of the pyramid represents complementary schemes, which are mandatory for only a portion of the population. Finally, the last pillar, represented by the tip of the pyramid, corresponds to additional schemes: this is what is commonly called supplementary pension savings (e.g. PERCO, PER, life insurance, etc.).

The entire population can build up retirement savings but via different devices depending on the situation of each person. For example, the self-employed can opt for a PER (Retirement Savings Plan) which allows both to build up additional capital at the time of retirement and to benefit from tax deductions. Moreover, the “Madelin Retraite contract”, another form of retirement savings for the self-employed, has been replaced by the individual PER.

5. Optimizing your taxation

To encourage you to invest now, systems are now in place to benefit from tax deductions on your retirement savings, in particular thanks to the individual PER. Payments into this savings are free, both in terms of the value of the amount paid and the regularity chosen by the self-employed person. It is possible to make two different types of payments:

• As part of his professional activity: these payments are then deductible from the taxable profit of his company
• Privately: these payments are then deductible from taxable income

This savings therefore allows you to contribute to your retirement and reduce the amount of your taxes. However, these tax deductions have much more impact for the self-employed with a high marginal tax rate. If you are interested in this solution, take care to find out according to your situation to know the amount of payments that would be most advantageous for them. You can already get a first idea of your potential savings via this tax simulator.

6. Diversifying your sources of income

Of course, if you want to maintain a comfortable lifestyle when you retire, we strongly recommend that you look at other sources of income. For this, there are solutions that can take the form of various investments:

• Real estate investment: generally the first investment made since it also allows you to build a place to live in which you will be the sole owner
• investing in the stock market: it is often the preferred option to passively grow your capital and, in the event of significant gains, have concrete funds to invest in various projects or in this case, save for retirement
• other investments: depending on your skills and interests, there are many other ways to diversify your sources of income, in particular through the monetization of your content on the internet, affiliation, cryptocurrencies, etc.

Depending on your financial needs, you can therefore benefit from an anticipated return on investment or prefer a solution solely dedicated to your future retirement. For self-employed people with a growing professional activity and significant inflows of money, it would be a shame not to take advantage of it now.

You may have a few decades left before retirement, but retirement is being prepared now. With the 43 annuities required to build a full pension, there is a good chance that you will retire without having contributed all your quarters. So it is better to anticipate now to guarantee a sufficient retirement pension through additional retirement savings, additional income or even quarters contributed in advance.

*Source: INSEE 2021

Article co-written with Caravel.
Caravel is a simple, flexible and sustainable retirement savings account that allows the self-employed, regardless of their status, to finance their future.