Early retirement at 60: What you need to know

Early retirement at 60: What you need to know

Understanding the options and conditions for combining income

The Luxembourg pension system offers attractive options for workers who wish to take early retirement starting at age 60 or continue their career while receiving a pension. Here are the details regarding the conditions for early and statutory retirement pensions, as well as the rules for combining these benefits with professional income.

The two types of retirement pensions

1. Early retirement pension

• From age 60: The beneficiary must have at least 120 months of contributions. These periods may include voluntary, retroactive, or additional contributions.

• From age 57: A total of 480 months of contributions is required.

This pension allows for early retirement but is subject to strict rules, particularly regarding the combination of income with professional activity.

2. Statutory retirement pension (Age 65)

• Available from age 65 with a minimum of 120 months of contributions, including periods abroad, provided at least 12 months of work have been completed.

Combining early retirement with professional income

Recipients of an early retirement pension from age 60 can continue to work, but they must adhere to strict income limits to avoid reductions or retroactive withdrawal of their pension.

For self-employed individuals:

• Annual income subject to contributions must not exceed one-third of the social minimum wage (SMW), i.e., €856.98 per month in 2024 (index 944.43).

• If this threshold is exceeded, the pension will be fully withdrawn retroactively for the relevant year.

On 1 March 2024, the Constitutional Court declared this provision unconstitutional, stating that the unequal treatment between salaried and self-employed activities violated the principle of equality before the law.

In principle, the National Pension Insurance Fund (CNAP) no longer enforces such withdrawals for self-employed activities. However, be cautious of CNAP’s retroactive rectification powers in the event of new information discovery.

For employees:

• Combined income must not exceed the average of the five highest contributable annual incomes during their career.

• If this limit is exceeded, the pension amount will be proportionally reduced or entirely withdrawn if the overrun is substantial.

Combining income with an early retirement pension

1. Case of a self-employed individual

Jen, 60, receives an early retirement pension of €3,800 per month and works as an independent consultant, earning a monthly income of €1,100.

• Total income: €1,100 (income from independent activity).

• Jen exceeds the authorized threshold (€856.98) and risks losing her pension retroactively.

2. Case of an employee

Paul, 58, receives an early retirement pension of €3,800 and works part-time with a monthly salary of €2,500.

• The monthly average of his five highest annual incomes is €5,000.

• His total income (€6,300) exceeds this average by €1,300.

• Result: his pension will be reduced by €1,300, and Paul will receive an adjusted pension of €2,500 instead of €3,800.

Combining income with a statutory pension (Age 65)

Unlike early retirement pensions, recipients of the statutory pension from age 65 can freely combine professional income with their pension without any risk of reduction.

Example:
Bill, 65, receives a pension of €3,000 and works, earning a salary of €2,700.

• Total income: €3,000 + €2,700 = €5,700.

• Her pension remains unaffected.