Should I utilize retirement accounts or go taxable?

One of the major decisions when investing is whether to invest in retirement accounts or in a standard taxable brokerage account. There are so many factors playing into this that it is impossible for me to consider every imaginable situation so I will try to lay out some of the considerations and then I hope you will add your own thoughts or questions in the comments 🙂 For those of you that just want a quick answer I made this decision cheat sheet:

Don't buy into livrente, do use aldersopsparing.
Fairly simple, right?

I also created one for “ratepension” that is a bit more complex and still doesn’t give clear answers – that will be the focus in today’s article:

A decision tree for whether you should fund your ratepension.
If you pay above 52% marginal income tax, and you expect a high spending in a distant retirement – max ratepension. Else don’t.

Regarding “livrente” I might have oversimplified it a bit but generally it’s more like an insurance than a retirement account and the payouts are probably too low compared to your investments unless you live far longer than average – the retirement companies won’t even give data on it. I will expand on it in a future short article but the conclusion in the interim is to never willingly put extra into livrente (I can’t stop my employer contributions and that’s fine, but I’d never add to them).

On the other hand, in an “Aldersopsparing” you have full control and access to cheap ETF’s – and if you have other stock investments you’ll usually also save on taxes since it will be easier to stay below the stock tax progression limit. I’ll also do a future in depth article on Aldersopsparing soon but I already shortly mentioned some benefits in a previous article. The trickiest decision though is whether to fund a ratepension if your employer doesn’t already max it so let’s dig into that.

Basics of ratepension

Let’s start with the basics to get on the same page. This retirement type is funded with pretax income – except you actually still pay 8% job market contribution from your salary before funding the account. You can only contribute up to 53,500,- (so 58,152,- before the 8% tax) a year – this used to be 100,000,- a few years ago and unlimited before that. At the other end of the deal the money in the retirement account will be paid out in monthly rates over 10-25 years as instructed by you. You can start taking payments up to 5 years before “folkepensionsalderen” (age of eligibility for public pensions) and you must have the last rate paid out within 20 years of folkepensionsalderen (so that’s where we get the 25-year max). Alternatively, you can in principle roll it over into livrente if you so please, but unless you are in quite exceptional health and have a family history of longevity you probably shouldn’t.

Tax implications of ratepension

The idea that is oft quoted when ratepension comes up is that if you are paying top level income tax now you can pay into ratepension with pretax income and avoid that last ~15% of taxes now. Then you can pay out the money from the retirement account in your retirement years while paying ~15% less taxes. This benefit has been quoted by banks, retirement- and insurance corporations and has pushed a lot of people in my parents’ generation to fund their ratepension with 100,000,- or more each year but unfortunately in some cases they end up with less.

The culprit with regards to ratepensions-payouts is the structure of the public pension in a base part and a part conditional on income. Actually, all of the pension is conditional on your income but the base part is only tied to employment income (anything that you pay 8% job market contribution on) and only starts to kick in if your employment income is above 316,200 kr (2017) after the 8% tax. So, it is a non-issue to most seeking FIRE and even if it affects you then that’s probably a sign that you will have more than enough. The part that affects a lot of us though is that “pensionstillægget” (the part conditional on any income) is lowered already when you earn 69,800,- (2017) or more in each calendar year from retirement account payouts or other non-employment income (140,000 for couples). When you earn above this limit then every single kr you earn pretax reduces your pretax pensionstillæg with 0.309 kr. until it is completely gone at 324,000,-. So, let’s look at an example to get a grasp on the potential price you will be paying for filling up your pretax retirement accounts.

Cheap Camilla and Proactive Peter

Cheap Camilla knows how to live frugally and doesn’t need all that much in retirement. Instead of working far too long to fill up her ratepension she quits her job early and has just enough in there to stretch it as 69,800,- a year over her 25 years of eligibility. So during retirement she receives:

  • Yearly payout from ratepension (+livrente+atp etc.): 69,800 kr
  • Yearly payout from folkepension: 73,900 kr
  • Yearly payout from pensionstillæg: 78,600 kr

This works out to a nice 222,300 kr. pretax and with an average municipality tax and no church tax we have 156,000 net (see my tax calc). This is 13,000 net a month which is more than a lot of unemployed people live on and quite manageable for a lot of us in paid off homes. Do note though that pensionstillæg is lowered for couples so for a couple the equivalent amount would be 263,000,- net or 22,000,- a month, so not quite double.

Proactive Peter worked his whole life to gather money, same as his parents before him, and because he paid top level income tax he stashed away quite a large ratepension to save on taxes. Even when stretching it over 25 years he still receives a payout of 169,800 kr a year – a clean 100,000 more than Camilla. So, what does he net:

  • Yearly payout from ratepension (+livrente+atp etc.): 169,800 kr
  • Yearly payout from folkepension: 73,900 kr
  • Yearly payout from pensionstillæg: 78,600 – 100,000*0.309=47,700 kr

This works out to 291,400 kr. pretax and with an average municipality tax and no church tax Peter can take home 199,000 kr. So, while having an extra 100,000 of income per year he only had an extra 43,000 kr a year paid out or an effective marginal tax of 57%. How crazy is that?! Also, keep in mind that the money in his ratepension was already taxed at 8% on contribution so he is far above the official tax-ceiling (tax ceiling is 52%+church of about 0.6% after 8% amb).

This illustrates the main issue with funding your ratepension. At best, you fund it with money that would have been taxed at around 52% and you end up taxed at 57%, at worst you added about 20 percentage-points to your marginal tax. Still we’re just getting started on the complexity and Peter might still come out ahead since:

  1. He can structure his income in a way to reduce total cuts to pensionstillæg
  2. He has had some growth at 15% PAL-tax rather than 27-42% (only an advantage in shorter timeframes)
  3. He might have had access to cheaper funds (especially ETF’s) inside of the retirement account

Taxes on retirement ratepension

We have 3 breakpoints for taxes on the payouts from your retirement accounts. For someone not earning any income aside from those payouts and folkepension they will look like:

  • 0-69,800 kr: Normal bottom bracket income tax
  • 69,800-324,000 kr: Normal income tax + cuts to pensionstillæg
  • 324,000-406,000 kr: Normal income tax
  • 406,000 kr and up: Top bracket income tax

The 406,000 comes from the progression limit at 480,000 kr minus the folkepension at approx. 74,000 kr.

Consequently, the marginal and effective tax we pay in an average municipality would be:

  • 0-69,800 kr: Marginal 37.4%, Effective 37.4%
  • 69,800-324,000 kr: Marginal 56.7%, Effective 37.4-52.5%
  • 324,000-406,000 kr: Marginal 37.4%, Effective 52.5-49.5%
  • 406,000 kr and up: Marginal 49.5%, Effective 49.5-52%
The graph shows the marginal and effective tax for different income levels in retirement
Anything above the 69.800 kr limit is taxed heavily

Also, note that if we only look at the part of payouts above the 69,800 kr then the effective tax on that will always be above 52% and often above 53% so higher than top bracket income tax.

Growth in retirement account

First just a simple check. Say we pay in the same amount (corrected for taxes) to either a ratepension or a normal taxable brokerage account and say that the fees & the growth is similar, and that there are no dividends. Let’s also for now say that the marginal tax on the contributions to ratepension equals the effective tax on the payouts and finally let’s assume a zero inflation. Those are big and generally bad assumptions but they are only meant to illustrate a point – growth at PAL-tax is only superior to 27% tax on timespans shorter than 25 years if we assume 7% growth:

Graphing the growth inside/outside a retirement account.
Difference is minimal before 40 years. PAL is better before 25 years with 7% growth assumption

Of course, this only holds if you can actually keep stock taxed at 27% rather than 42%. I’ll look at stocks and taxes another time but you might stay close to the 27% progression limit even on even large amount of stocks since you are only taxed at realized profit and since dividends will keep your cost basis up even when they are otherwise annoying. Also, the graph is similar at 35% effective tax on stocks except the difference is insignificant for 50 years instead of 40.

One way to think of this is that if you are looking at one year returns then obviously a 15% tax is better than a 27% one. But the 15% tax hinders compound interest so it’s a race where the Pal-tax starts out ahead but over long time frames nothing can keep up with compound interest. I was surprised when I saw that the catchup time frame was only 25 years under the given assumptions and it certainly limits the advantage of utilizing retirement accounts during youth.

Here is the sheet with the two above graphs – make a copy and change assumptions or check calculations if you want, but there is a more refined sheet just below: Graph Sheet

So, can it be worth it

I made a sheet that calculates outcomes on investing your pretax income into a ratepension versus just a standard brokerage with a few more input parameters. You can find it here: Calculator: Ratepension or Taxable Brokerage

A screenshot of the spreadsheet inputs and outputs.
A screenshot of the spreadsheet. Notice that an investment in taxable does best in the example.

It still doesn’t consider the specific payout schedules you can take advantage off to limit cuts to your “pensionstillæg”. Playing around with it for a bit though, you’ll see that if you are not taxed in the top income bracket currently it is almost never worth it to pay into ratepension. Also, you might note that if you’ll end up paying around the same marginal tax on payouts from the retirement account then it’s only worth it for relatively short timeframes and even then, it doesn’t make a big difference.

Alternative payout schedules & delayed folkepension

Without going too much into depth (that would be yet another big complexity best reserved for another time) there are a lot of considerations regarding when to take payouts from your ratepension. There are four basic approaches you can take:

  • Pay out over 25 years to lower the yearly amount and thus minimize taxes each year.
  • Pay out over 10 years starting 5 years before folkepensions-age. This way you will probably cut your entire pensionstillæg but only for 5 years instead of 20.
  • Try to hit a sweet spot between the two above. The marginal tax between 324,000-406,000 kr is only 37.4% so rather take 406,000 kr for a few years less than hit 324,000 kr every year.
  • Pay it all out at the 60% penalty

Generally, I think you’d take the first approach if your account holds around 1.3 million kr or a bit more. If you have substantially more than that then option two and three would probably start being more attractive. Option four is not attractive in realistic circumstances (also not possible in many accounts) but is an emergency brake in case of new laws that taxes your retirement funds even further – I don’t expect politicians will want to do that though.

Another more unconventional option is that if you are still working you can delay your folkepension by up to 10 years to earn up to 35% extra on the payouts. This is generally not worth it for average expected lifespans but if you do work the required 1000 hours a year and your pension payouts would be heavily taxed if you took them then you might want to consider delaying them.

Additional spending but still full pensions

Initially in this blog-article I noted how 156,000 of net income was fairly optimal for tax reasons since additional income is taxed heavily through cuts to your pensions. However, you can spend more than that if you want in a few ways. The obvious is that any savings you have won’t count as income so you can spend from those. Aldersopsparing is an example of this and is a fine way to keep your savings growing without filling your 27% stock-tax progression limit. But you can also sell stocks for higher amounts than the 69,800 pension limit as long as the realized gains lie within that limit. For new investments or investments that otherwise have a high cost basis (from dividends or tax harvest) this can mean big withdrawals without much tax-footprint that deducts from your pensions.

Other than that, there are two smaller deductions aimed at retirees:

  • You can earn 10,000 kr tax free if working in private homes
  • The first 60,000 kr (after 8%) employment income you earn isn’t counted anywhere when calculating your pension payouts.

government subsidies per spending

Till now I’ve talked about how cuts to your pension payouts is effectively a tax on your income. One could also argue that the public pension is not yours in the first place and that you should just count yourself lucky to get it. That discussion can easily get political so I will abstain here but I feel like that point of view merits at least a mention. A graph could be made that would basically be an inversion of the effective tax graph above but I’ll have to owe you that 🙂

Pheeeeeeew

That was a long post and it was mostly for nothing. The actual advice does not differ much from what you could probably have found in a lot of other places. finanshus.dk says it like this:

  • Invest in an “aldersopsparing” type account if you don’t need the money right now
  • Invest in other retirement accounts only if you pay top bracket income tax now and will not pay top bracket income tax in retirement

I do like to do the calculations myself though rather than take advice online at face value and I hope this post has helped shed some light on the subject for you – it did for me. I also hope some of you will post your own comments, plans and questions here.

I know it’s been a long hiatus without any posts but it’s hard to find the time to research, create spreadsheets and write these long posts. I will try to post more frequently but I’ve also been considering an outlet for shorter articles or links to interesting new articles etc. I know a Facebook group would be the usual solution for that, but I don’t really like Facebook. I’ve been considering a forum, a chat, a wiki or a subreddit – check the comments here: buy-or-rent and offer up your input either there or on this post.

35 thoughts on “Should I utilize retirement accounts or go taxable?”

  1. Du glemmer at tage højde for risiko for skilsmisse eller samlivsophør. Pensionsopsparinger gennem arbejde (typisk ratepension og livrente) deles ikke (længere) ved skilsmisse fordi de som udgangspunkt opfattes som rimelige.

    Det vil bero på en vurdering i skifteretten hvorvidt der er tale om rimelige pensionsopsparinger og man kan naturligvis sikre sig imod denne problemstilling ved at oprette en ægtepagt. Gør man ikke det, kan det dog være fornuftigt nok at sikre sig en mere-end-minimum indbetaling til sin arbejdsgiveradministrerede ordning som værn mod skilsmisse/samlivsophør.

  2. Jeg ville lige benytte mig af den store regne kapacitet herinde; min ratepension består pt af 60% Ishares S&P500 og 40% nordnet superfond c20. Denne fond eksisterede ikke da jeg startede min opsparing. Ishares har omk. På 0,07% (hvis jeg holder dem i 7 år som bekendt). Nordnet 0,0%.

    Jeg overvejer om ikke det ville give mening at sælge mine Ishares for at købe superfonden og spare omkostningerne.

    Det der afholder mig er
    1) salgsomkostninger
    2) dollaren er faldet, c20 er steget og således risiko for at “sell low, buy High”

    Det skal siges at mine frie midler er 100% i global index.

    Hvad er din holdning til at sælge for at spare de årlige omkostninger?

    Håber forresten at der kommer flere indlæg. Niveauet har været højt og meget tilfredsstillende at læse.

    1. Hej Rangle,

      Personligt ville jeg nok finde det pengene værd, at betale 0,07 ÅOP for en meget større spredning på mine penge (S&P 500 vs. C20).

      Hvor står det iøvrigt, at hvis man beholder iShares S&P 500 i 7 år, så er ÅOP nede på 0,07%? Det er jo vildt gode nyheder.

      Jeg har den her: iShares Core S&P 500 UCITS ETF USD (Acc) (EUR) – er det det samme, med de 0,07%?

        1. ÅOP på 0,07% er sgu gode nyheder, synes jeg. Og det bliver endnu bedre nyheder den dag, hvor vi kan købe ETF’er for frie-midler uden lagerbeskatningen. 🙂

          Jeg tror ikke, du skal tænke så meget på valutarisikoen. Det udjævner sig over +10 år.

          Hvilket global index køber du for frie? SparInvest?

          1. Hej igen.

            Ja, via Mdr. opsparing på Nordnet som så mange andre.

            Enig i det med valutarisikoen.

            Jeg faldt over denne her på Sparinvest hjemmeside:
            https://www.youtube.com/watch?v=cgM_FeUdOA0

            Her nævner de bl.a. at ved ETF’ere holder hjemlandet noget af udbyttet tilbage i for a beskatning. Det sørger Sparinvest bl.a. for at indkræve efter bedste evne i deres investeringsforening. Det er svært at kvantificere betydningen af dette synes jeg.

    2. Hej Rangle

      Godt at Anders kan kommentere når jeg nu er sløv 🙂 Jeg synes dine omkostninger lyder fornuftige og synes ikke at de i sig selv giver anledning til at sælge ud. Så er det bare et spørgsmål om hvorvidt din nuværende allokation strider imod en international vægtning du prøver at ramme eller imod et krav til enkelhed. Personligt går jeg ikke så meget op i vægtning mellem USA, Danmark og World så var jeg i dit sted ville jeg nok bare beholde dine Ishares og så fremadrettet købe superfonden. Men jeg er nok ikke den rigtige at spørge om international allokering 🙂

      Mvh Asbjørn

  3. Small addtion regarding Aldersopsparing:
    If your income i less than 342.858 kr. (28.500 pr. month) then contributing to an “Aldersopsparing” instead of rate-/livrentepension, has the added benefit of not reducing your “beskæftigelsesfradrag”

    1. Great observation. So generally when you earn less than DKK28,500 the tax benefit of paying into “ratepension” is slightly lower than usual since you are losing part of your “beskæftigelsesfradrag”.

  4. Worlds smallest error: In the file Graph Sheet (Graphs on retirement and taxes), you are caluclating PAL with 15% instead of 15,3% ;P

    Also I feel like there should be an explanation in the article why the number 1.3 million in ratepension at retirement is significant? ie. why is it 1.3 and not 1 or 2 million? I assume it’s due to the income you can ahve before cuts to “pensionstillæg”.

    1. Haha – good catch. I corrected the 15% to 15.3%. I often use 15% for just quick back-of-the-envelope calculations but apparantly it sneaked into a published sheet – embarassing.

      Regarding the 1.3 million you’re completely right. It’s a quick estimate of what you need to withdraw DKK 69,800 a year for 25 years. Your expectations for market growth at that time will of course change this number, but here I just used 2-3% above inflation and after PAL-tax as a relatively conservative estimate.

  5. Excellent post! Since I don’t pay topskat, I think you’ve convinced me to not contribute to ratepension other than what my employer forces me to do.

    I’d also like to say that your blog contains fantastic work. It’s a true pleasure to read it.

  6. Hi dude,

    Nice post! Really, really nerdy. I can’t figure all this pension shite out. Keep the posts coming, especially with pensions. Maybe some day I get it.

    Myself I have the PFA ratepension with 9% from myself and 4% match from employer. The pension is tuned to “Holy shit, it’s gonna be bumpy ride” (as progressive as possible).

    Im 28, and 30-50% of my take home pay goes to various investments/debt pay off (early stage FIRE). I’m looking to optimize for taxes, so this post is great 🙂

    I think I might downgrade in PFA – if not I will be too rich in pension – Buhuuu 😉

  7. Hi Asbjørn

    Regarding your PAL-skat vs. 27% on a standard brokerage account: What are your thoughts on the fact, that it seems better to invest in a standard taxable account, if you can keep under the 27% tax limit?

    – doesn’t this illustrate, that aldersopsparing is NOT such a good idea, but that we instead should focus on the great compounding effect we get on our “frie midler”?

    Are you btw. any closer with calculations on how big stock yields – like the ones on SparInvest INDEX Global – effects the compounding effect, because we pay 27% on the yields before we can re-invest?

    Thx for a good read,
    Anders

    1. Regarding the dividends, I have the spreadsheet ready and am working on a short article that I will publish hopefully Friday, but more likely Sunday or Monday. As you speculated high stock yields (in the 5-10% region as seen on some SparInvest funds) do slow growth by a lot. I talked to SparInvest but they didn’t comment except on the fees which are as you know quite low. If I’m right in my calculations (which I invite you all to pick apart when I release the article) a 7% dividend vs. a 1% dividend with the same growth might very well cut your 30 year profits by a third.

      And yeah aldersopsparing is not as great as I thought at first. What I keep coming back to though is that it will help keep you down in the 27% bracket for stock tax which to me is a great benefit in and of itself. For taxable at 42% to win out vs. PAL-tax you’d generally need timespans longer than the 35 years till I can withdraw it. Also keep in mind the lower fees in retirement accounts – a 0.5% fee on 7% growth is almost half a 15% PAL-tax. So, I keep stacking away the max into aldersopsparing and then I will try to put aside as much as possible into taxable at the side. When yearly growth in my taxable approaches the progression limit (far down the road) then I will reconsider ratepension which might at that time be a good deal.

    2. Hej Anders og Asbjørn
      Jeg har et excel ark hvor jeg sammenligner aldersopsparing med aktieopsparing i frie midler, hvor effekten af dividende udbetaling, forskellige vækstrater og effekten af at kunne benytte etf i aldersopsparing undersøges.
      Konklusionen er at for vækst under 7% aldersopsparing altid er bedre, idet dividende udbetalinger hæmmer væksten når man investerer for frie midler, og effekten af at kunne vælge etf’er frem for investeringsforeninger også gør en væsentlig forskel. I kan se udregningerne her

      https://www.dropbox.com/s/0nypfuipef47gbo/aldersopsparing%20eller%20frie%20midler.xlsx?dl=0

      1. Fed opstilling 🙂 En enkelt lille detalje er at man nok bør medtage at inflationen æder af realværdien af din investering i de frie midler og at den del der holdes skattefri derfor er lidt lavere end summen af indbetalingerne. (I M24 f.eks. friholder du I12-I24 for skattebetaling selvom I 12 er 29600 i 2017-kroner og I24 er 29600 i 2029-kroner. I 2029 kroner skal der holdes mindre end 29600*12 fri af skat).

        Det er klart at ligesom PAL-skatten hæmmer renters rente, gør udbytte og deraf følgende beskatning det også. Afhængigt af udbyttets størrelse i forhold til væksten er den effekt større eller mindre. I en aldersopsparing er man automatisk garderet mod højt udbytte da det ikke beskattes anderledes end vækst – i frie midler må man tage udbyttebetalinger med i sine overvejelser af aktier eller investeringsforeninger. Uanset så passer det stadig med (som jeg vist også skrev i artiklen) at på den mellemlange bane (15-25 år) svarer Pal-skatten nogenlunde til den aktieskat man ellers ville betale; altså forskellen på at investere i frie midler eller aldersopsparing er lav. Dermed er skatteforholdene ikke nødvendigvis den vigtigste faktor, mens de lavere gebyrer i aldersopsparingen og det at man kan tage den ud uden at registrere en indtægt ift. forskellige progressionsgrænser bliver nok det mest betydningsfulde. Andre vil mene at den større fleksibilitet i frie midler er vigtigere 🙂

        Beklager evt. misforståelser i ovenstående – det er fredag og jeg har fået min første fredagsøl 😉

        1. Hej
          Det er korrekt at inflation kan have en hvis indflydelse, jeg har nu korrigeret udregningen indbetalingsgrænsen hæves med 2% om året, således at udregningen for f.eks. 2029 er opgivet i 2029 kroner. Det ændrer dog ikke væsentligt på noget, aldersopsparing er stadig det bedste valg qua de billigere produkter man kan vælge, selv over meget lange tidsserier (50år). Bemærk desuden at frie midler kun beskattes med 27% i udregningen, det ville således tage rigtig mange år før man kunne få tømt kontoen.
          Den lave beløbsgrænse for indbetalinger gør dog at man udover at fylde sin aldersopsparing bliver nødt til at have en væsentlig opsparing i frie midler hvis man virkelig vil rykke noget, så det er mere både og end enten eller 🙂

      2. Hej Daniel

        Jeg har med interesse set dine udregninger.

        Har du mulighed for, at knytte et par kommentarer på udregningerne?
        – Hvad tænker du?
        – Hvad er din investeringsstrategi på baggrund af tallene?

        Jeg tænker flere ting, men primært:
        – Jeg er overrasket over, at forskellen ikke er større på Aldersopsparing vs. Aktieopsparing i frie midler med dividende (men her er så heller ikke taget højde for, at beskatningen er 42% når du er over de 50.000 i indtægter på frie midler. Korrekt? Og det kommer vi som søger FI jo på tidspunkt når vi har over 700.000 i frie midler.)
        – Så er jeg egentlig også overrasket over, et en 30 årig indbetaling af 29600 med en antaget 7% vækst kun udarter sig i 2.400.000 DKK.

        Så alt i alt bekræfter disse marginaler mig I, at når man har valgt nogenlunde billige ETF’er/Aktiefonde, så bør man derfra set and forget, og fokusere på at tjene/spare flere penge, så man kan få flere penge ind i markedet. Tænker du det samme?

        De aller bedste hilsener,
        Anders

        1. Hej Anders
          Det er rigtigt at der ikke er korrigeret for 42% skat, hvilket vil favorere aldersopsparing væsentligt ift. frie midler. Jeg er enig med dig i at det er lidt overraskende at der ikke er større forskel på frie midler og aldersopsparing selv efter 30 år, man skulle tænke at politikerne skulle være interesserede i at stille favorable pensionsformer til rådighed, så folk får mulighed for at spare op selv og mindske befolkningens afhængighed af folkepension. Men det kan være det kommer.
          Min konklusion ud fra tallene er at man skal fylde sin aldersopsparing med billige etf’er, og så ved siden af have en væsentlig opsparing i aktier for frie midler. Det er også altid bedst at spille på flere heste, hvis nu politikerne pludselig ønsker at hæve/sænkte pal-skatten/aktieskatten/progressionsgrænsen for høj skat eller noget helt fjerde. Der er for midt vedkommende under alle omstændigheder lang tid til pension, og jeg synes det er svært at spå om hvordan Danmark ser ud til den tid, så jeg forsøger at sprede mig så godt som muligt på tværs af flere investeringsformer.
          Og så tror jeg på at det sidste du skriver er det aller vigtigste, nemlig at få så mange penge som muligt hældt i markedet (og så glemme dem) over en så lang tidsperiode som muligt, så går det ikke helt galt.

  8. Holy smokes, I didn’t realize that the reduction of the pensionstillæg happened at such a low income rate. I just checked pensionsinfo.dk and the prognosis is that just through the income from my normal arbejdsmarkedspension (it’s a livrente pension) my pensionstillæg of 78k a year (if I’m single) will be reduced by 40k 😮

    And I’ve only been working for 3 years, so I expect that my pay check and thus also my payments to the arbejdsmarkedspension will increase in the coming decade. That’s a bummer.

    My collective agreement as a government official in the state makes it possible to reduce my pension payments of 17.1 % by 0.3 %… yeeeey :/

    1. By the way, if one is anyhow planning to retire earlier than the folkepensions-age, wouldn’t it then make sense to speculate in getting your livrente paid out as early as possible? Presuming that conditions at that time are roughly the same as today, which is of course a major uncertainty.

      But if we presume that then livrente can be paid out five years before the folkepension, which reduces the amount paid out throughout the rest of your life meaning less reduction of your pensionstillæg when you reach your folkepensions-age.

      Before the folkepensions-age you can then combine your aldersopsparing with your earlier paid out livrente to retire early and the hopefully considerable size of one’s aldersopsparing at the time, if one has maxed it out through life, should make sure that the time after the folkepension-age will still be pretty comfortable.

      1. I think the consensus is that you should always take annuities as early as possible and then just invest it yourself if you don’t need the money right away – I’ll try to research and cover it in an upcoming post though just to make sure 🙂 Aldersopsparing and livrente in itself will only buy you five years of early retirement since they can’t be withdrawn before that without penalties. So if you want to stop earlier you will have to do some in taxable as well. That said even modest amounts into aldersopsparing in your thirties will easily let you stop 5 years early even if we only see 4% real growth over the next few decades 🙂

        Thanks for reading and commenting!

  9. Great article. Diffucult subject. Especially since most of us have mandatory pensions and many will on that alone loose their tillæg. If they Are already above this – then ratepension would still make Sense I guess?

    1. Yeah I thought about that too but didn’t get around to mentioning it in the article. If you already have enough to lose the pensionstillæg then it is mostly about the growth if marginal tax is the same (52% on both deposits and withdrawals). Growth is a bit cheaper taxwise in your retirement account if you are within 25 years or so of withdrawals depending on your expectation for growth and your fee structure. Also you might plan around paying out the pension over 10 years either from 65-75 or 80-90 to max your pensionstillæg. 65-75 would be very beneficial regarding the cuts, but it’ll be easier to know when you get close and know your situation better.

      But good point. Most of us are tied to the account through our job and that is fine – we can’t do much to change it either way. I think the main point of the article is that the tax relief people talk about with regards to ratepension is mostly fantasy and thus you should just invest your money where you feel comfortable.

      1. Thank you for your reply. And again – I am very enthusiastic about this blog 🙂

        I am no mathematical genius – so I would like to apologize beforehand. In the case all pensionstillæg is deducted because of employer pensions – would it not make sense and always reduce the marginal tax by adding/maxing ratepension? The point where all is deducted is where marginal taxes are highest – so any reduction at the time of deposit would pull the other way?

  10. Thanks for taking the time to write this post! Its highly appreciated 🙂

    A small note to the following:
    “When you earn above this limit then every single kr you earn pretax reduces your pretax pensionstillæg with 0.309 kr.”

    shouldn’t it have said 30.09kr?

    1. Haha – great catch. It’s Pensionstillæg and not Tillægspension of course (I will correct it). Short explanation in case anyone jumps to the comments: It is just about half of the possible payouts in folkepension (public pension). It is standard for everyone but scales downwards with income. So if you don’t have outside income you earn the full folkepension which is about 12.700 before taxes but if you earn a lot you only get half. The point is that it is income-conditional but not conditional on total assets so you might want to structure your payouts around it. On the other hand the “ældrecheck” (seniors check) is conditional on assets with a limit of just 84,300 kr (2017) so I didn’t even really bother writing about it since I figured everyone here would be above that amount in retirement. The ældrecheck also pays out only around 17,000 per year before taxes.

      1. Ahh all this retirement stuff seems so complicated. Do you know of a site/link/document showing the downscaling of payout? Is there a sort of sweetspot to hit?

        1. There are some sample calculations at the bottom here: http://www.socialpension.dk/hvordan-beregnes-pensionen.html

          However, the sweet spots are 69,800 kr after which you lose 30.9% in retirement income and then again 406,000 kr. At 324,000 your entire pensionstillæg is gone so you are just paying bottom bracket income tax from 324,000-406,000. After 406,000 (+74,000 in public pensions) you run into the top bracket income tax.

          If I remember correctly, you are on a compulsory retirement plan (on livrente) through your job so there’s not much for you to do about it either way? I’d do aldersopsparing and standard taxable brokerage (as you already do) over paying extra into ratepension but that’s it. Then there might be some complicated decisions at the time of payouts, but there’s plenty of time to look into that 🙂

          1. Thanks for the reply. Yeah, I find it frustrating that I can’t do anything about the livrente situation. I should probably just accept it. Why would you still recommend the aldersopsparing though? Money put into this type of account is for 65+, where I already have the livrente + folkepension. Just curious about the strategy here.

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