The following guidelines can help everyone achieve a successful savings plan:

• 1) Define a budget which you can respect over the long-term: A good starting-point is to budget between 5 and 7.5% of one’s gross salary towards savings.
• 2) Save on a regular basis: It is more reliable to save a regular amount each month or year than to aim putting a large lump-sum aside when the opportunity “comes around". In general, the opportunity never “comes around” or when it does it is spent on a holiday or other treat!
• 3) Timing: Make your money work for you. The longer the plan is, the more interest it will generate. Two examples on this site demonstrate that an interest rate as low as 2% can almost double the amount we have invested. The example at the bottom of this page illustrates the power of compound interest.

Link to example 1

Link to example 2

See the example at the bottom of this page to understand why compound interest is so important.

Let’s use the example of the third pillar savings plan used on this site:

• Between the ages of 21 and 35, the person saved 85’380.-
• With a compound interest rate of 2.8%, this amount will generate 2’391.- (85’380 * 2.8%) at the end of the year, this can be considered as “free money” or money that has worked for you.

• This repeats itself each year as follows:
• Capital: 85’380
• Interest (2.8%): 2’391
• Savings for the coming year: 6’826
• TOTAL: 94’597

• In one year the amount on the savings plan increased by 9’217.- (94’597 – 85’380) yet the beneficiary only funded it with 6’826.-. His savings plan generated a return of 25%
• Fifteen years later, with regular payments of 6’826.- per year and compounded interest, this same plan has a value of 268’255.-. The interest on this lump-sum is now 7’511.- (268,255 * 2.8%). The plan is now generating a return of 110% on the 6’826.- funded per year. The last year of the plan will generate 13’703.- of interest, twice the amount funded that year.

The moral of the story is that the earlier you start funding your savings plan, the more money there will be on it, and the more your money will work for you.

In 2020 the classic pillar 3 bank account generates an interest rate which does not even compensate inflation (between .10 and .35%!!!). The law allows you to transfer the capital on one of these accounts to a pillar 3 account that generates a better return. Do not hesitate to contact us for advice.