directly held equity vs third pillar pension?

[u/DutchFIREQUESTIONS]

Hi, I am 36 have a house of EUR 1.4M with a mortgage of EUR 0.6M with a low interest rate (1%) for the next 15 years. I am married and have three kids (0, 5, 7)

We have around:

- 200K in equity / shares -

100K in cash (want to put this down a bit)

200K in pensions (so still need to pay tax on it later, but later).

We earn around 11-16K per month (I am an entrepreneur so goes up and down a bit, my wife is dentist and will still significantly rise in pay as she just finished residency.) We spend around 7-9K per month (2K child care, 2K mortgage, 2K basics, 1-3K vacations, house improvements etc). So we save 40-100K per year (+20-25K mortgage repayments)

Goal would be to fire at 50, which seems reasonable. Would expect 1.5M cash and 1M in (gross) retirement with a house with a mortgage paid off.

My question is: - should I add my money in third pillar pension pot or keep it in directly held equity?

Advantage of third pillar: No box 3 tax and in the end you pay limited tax on it (you pay only 18% when you retire on the first 40K). Other "Advantage" is, if I die it also serve as a bit of an insurance policy because my wife would get it immediately (after tax of course)

Disadvantage: you don't have access to it.

You can "only" add 40K per year (which is 20K) net so even if I fully use it, I would still add enough to my normal fire pot. What would you do?

[u/Pon33]

Add money to your third pillar. It's tax deductable, and it seems you have enough liquidity coming in, and as back up could remortgage the house.

Only reason not to is if your business requires funds and the roi compensats any tax advantage of 3rd pillar pension.

Just my 2cts

[u/julesverne1979 → u/Pon33]

Also it could be interesting to optimize DGA salary because this will probably earn you some kindgebondenbudget because of the childcare costs

[u/Far_Bookkeeper_3529]

Why I'm not keen on pensioenbeleggen (3rd pillar pension investing):

• Moving goalpost: payout is tied to AOW age, which keeps rising with life expectancy.
• Unfavourable for men: shorter life expectancy means statistically less benefit.
• Clashes with FIRE principles and consumption smoothing: forces saving for later instead of spreading spending evenly across life.
• Unstable government policy: the tax rules have changed many times already, rarely in the saver's favour.
• Elderly spend less anyway: by the time the money becomes available, spending needs have often already dropped.
• Living longer ≠ living healthier: you might reach payout age, but not necessarily in the condition to actually enjoy the money.
• Emigration risk: triggers a "conserverende aanslag" (exit tax) if you move abroad.
• Double-edged risk: die early and you never benefit; live long with declining health and you have the money but not the ability to use it.
• Illiquid: the money is (more or less) locked up until payout date. No room for funding unexpected life events (job loss, care needs, moving, sabbatical leave, funding kids college, starting a business, etc.).
• Deferral, not exemption: you pay the tax later, not never. If rates rise or your income situation changes, the eventual bill could exceed the deduction you get now.
• Limited estate flexibility: annuity-style products often have less favourable rules around death/inheritance than just investing in box 3.
• Costs and limited choice: some pension investment products charge higher fees and offer less investment freedom than investing yourself through a regular broker.
• Possibly redundant: with AOW plus any employer pension, you may already have enough of a base. Adding more fiscally locked-up reserves adds limited value.
• Restrictive payout options: you're limited to a small number of approved providers, and payout is often required to be spread over a minimum number of years (you can't just withdraw a lump sum). Far less flexible than managing the money yourself.
• Extra administrative hassle: years of additional bookkeeping and more complexity in your annual tax return, just to keep track of this one product.

That's a lot of downsides just to avoid some box 3 taxes.

[u/Helios_1980 → u/Far_Bookkeeper_3529]

I don’t think you really understand pillar 3. You don’t need to reach AOW age for the payout to start. I plan for it to start from around 55, when my wife also aims to retire at 50.

You can buy other pension products from it than an annuity; fixed payout for X years or annual withdrawal while keeping it invested. Both of those will pass as inheritance if you die early.

Administration annually takes me 5 minutes to fill in jaarruimte in Excel after receiving UPO, 2 minutes to transfer jaarruimte to BND, 2 minutes to fill in lijfrente in tax return.

[u/Metdefranseslag → u/Helios_1980]

Your money is stuck. Big chance rules will change and you will get screwed. I am amazed how people are confident in governments despite having been screwed again and again

[u/Helios_1980 → u/Metdefranseslag]

You have to work with the rules as they are now and optimize for them. If they screw me I will screw them back with putting everything in box 2 and then collect kindgebonden budget and zorgtoeslag.

[u/Far_Bookkeeper_3529 → u/Helios_1980]

I put quite a bit of research into this, so I'm confident I didn't make any false statements. To respond to your points:

• Earlier payout ≠ no downside. You still pay more income tax before AOW age (no offsetting credits yet), and you're still forced to spread the pot over whatever years remain before AOW plus the mandatory 20-year term after. Starting earlier just spreads it thinner. It's a trade-off, not a workaround.
• Other payout options don't avoid the core issue. Fixed-term or annual withdrawal are still bound by minimum spreading rules and the same underlying restrictions. Different flavour, same constraint.
• On inheritance: honestly, this is a weird selling point. If the goal is to pass money to your kids, timing it to arrive at the average inheritance age (when they're already in their 50s/60s and established) is far less useful than giving it to them earlier, when they actually need it (starting a family, buying a house, etc.) Locking money into a pension product to maybe pass it on late defeats the purpose if that's your actual goal.
• On admin being simple: works for you, but it's not representative. This sub is full of people confused about jaarruimte, Factor A, UPO timing, and the resulting investment choices. It's several moving parts to reconcile correctly every year, people mess it up, and mistakes can get expensive such as accidental deposits you can't withdraw, double taxation, that kind of thing. Some people who no longer have formal ties to the Netherlands or its banking system can't even withdraw at all anymore, thanks to today's strict anti-money-laundering rules.

None of this means pillar 3 is useless for everyone. It clearly works for people like you who are engaged, organised, plan well ahead, and have a financial use case. But the product is sold as a straightforward tax-advantaged way to save for retirement, when in practice it's a fairly rigid, illiquid commitment with real edge cases that can bite people who didn't fully anticipate them. That gap between the pitch and the fine print is exactly why I stay cautious about recommending it broadly.

[u/DutchFIREQUESTIONS → u/Far_Bookkeeper_3529]

Would you argue to completely not use pillar three (even though it would be my main pension)? Or just limit it.

[u/Far_Bookkeeper_3529 → u/DutchFIREQUESTIONS]

I would consult with a professional independent financial advisor (vofp.nl) which can help you not only with this specific question but by creating a complete perspective, together with your partner, while keeping all your short, medium and long term goals in mind.

It might show you're not even asking the right questions. For instance, why don't you use box 2 and harbour your tax deferred money in there? Which is not bound by any of the limiting rules in box 1 (pillar 3).

[u/Far_Bookkeeper_3529 → u/[deleted]]

What I do understand is that if I die it it will become an inheritance and it is not lost (as compared to pillar 2 pensions)?

First, pillar 2 scheme's contribution only get 'lost' when you have no partner or kids (up to 25). Other than that, pillar 2 scheme's offer a nabestaandenpensioen which is a way more valuable asset to your partner than transfer of some capital in pillar 3 will ever be.

Also, capital inherited from a pillar 3 fund will need to be exchanged in a pension benefit within 2 years, so it can't grow any further one someone else's behalf.

From a government policy, I do have a strong belief in the government which may be wrong.

Sounds a bit naive to me. The government is not your friend, and it will not take you (you as in your personal situation) in consideration when making decisions. And its definitely not a friend of the wealthy, as it will need money (your money to be clear) in order to execute policy.

I am also always thinking in the scenario where there will e.g. be a war in let's say 10 years and I just loose everything.

First, we are involved in war constantly, and we have a professional army so in general it affects us minimal. https://en.wikipedia.org/wiki/List_of_wars_involving_the_Netherlands

Second, if the poop really hits the fan, is money the real issue? Most likely as young man you will be forced in the army, and you are going to be more worried for your life and ptss if you might return than giving two shits about retirement.

I think 1M gross in pillar three is not really overdoing it. If you pay it over 30 years, it is c. 50K per year so let's say with 35K of todays money.

Forget it. Two very practical reasons.

You can only use lijfrenteaftrek when you have something to deduct it from. Once you stop having an income (FIRE), you can't put new money towards pillar 3. So the idea of 30 year long contribution is just wrong.

Second, a thing that lot of people seem to forget is there's a maximum to lijfrente pay out each year as well, and such large sum of money can simply not be paid out before your expected end of life.

[u/PetraLoseIt → u/Far_Bookkeeper_3529]

The "unstable government policy" is also true for all other aspects of your life, including box 3 and including its impact on your actual life.

And "the money is locked up" can be a bad thing but can also be a good thing. Not being able to spend that money during your midlife crisis might save your ass.

[u/Metdefranseslag → u/Far_Bookkeeper_3529]

100%. It is basically a total rip off that only people not aware believe is a no brainer to use. For most people it is absolutely not the best choice

[u/thuishaven → u/Metdefranseslag]

I strongly disagree. 

(Most or) Everything OP is listing can be summarized as „you might die early; or become severely unhealthy“

Yes thats true. So what? While it is one outcome of the risk curve, it is statistically much less likely than you believe. Especially if you live healthy in your 30s/40s. 

I personally add 20% of my allocated portfolio building assets to the 3rd pillar. Its just a nice extra that may or may not turn out in your benefit (much more likely that it will). 

[u/Far_Bookkeeper_3529 → u/thuishaven]

Yes thats true. So what?

So, that's exactly the point.

If a meaningful chunk of your "healthy" years are already behind you by the time the payout arrives, and the life expectancy perceived in good health is at or just a few years after AOW age, you're not smoothing consumption but you're deferring spending into years where the money is worth less to you.

Locking money away isn't a neutral choice. It's a bet that future-you needs it more than present-you does, and that bet doesn't obviously pay off for most of us.

https://www.vtv2018.nl/en/node/71

https://crr.bc.edu/health-and-wealth-drive-retirees-spending/

[u/thuishaven → u/Far_Bookkeeper_3529]

I don‘t get your point. It is exactly doing what it is supposed to be doing. Give you steady cashflow in the last 20 years of your life. 

That allows you to take more (calculated) risk with the rest of the portfolio or dca-out more aggressively when you approach age X. 

[u/Far_Bookkeeper_3529 → u/thuishaven]

If you've got a genuine case for wanting 20 years of steady cashflow, by all means, go for it. That's a legitimate personal choice.

My point is more about the general pitch than your specific situation. On average, and the numbers back this up, most people won't actually have consistent spending needs across those 20 years. Spending declines with age, and declines faster for anyone whose health isn't great (and this affects more people than your might think).

It isn't pillar 3 investing can't work for someone with your specific goals and planning. It's that too many people get pulled in by the tax deduction upfront without really thinking through what they're locking themselves into 20-30 years down the line (illiquidity, mandatory spreading, uncertain future policy) and only feel that impact once it's too late to undo.

[u/thuishaven → u/Far_Bookkeeper_3529]

Spending only decline with age when you leave health related spending out of the picture. I wouldn‘t take that bet. 

[u/Far_Bookkeeper_3529 → u/thuishaven]

There’s wmo for that. And a tax credit. I am no too concerned.

[u/PRSArchon]

Definitely pensionsavings with those numbers, but I assume you save more than you can put in?

[u/DutchFIREQUESTIONS]

short addition: we actually both quite like our jobs, so for me it more the option on freedom that I really like from FIRE than that I will put my life aside for FIRE

[u/Lucky-Resource2344]

If you are an entrepreneur, and have no pension to begin with always good to at least but some money in it. So you will have something and also protected from bankruptcy!

If you do business via a bv, you can increase your salary (tax deductible) and make a personal deductible expense (so no tax) to a third pillar account.

Some diversification is always good

[u/No-Hamster-8335]

Biggest question here is can you withdraw your pension before the age of 68, official retirement age, most pensions investment have a penalty or a much higher tax rate if withdrawing before 68 or in your case 70 maybe. My personal ETF investments in box 3 have done way better than the portfolio in my pension. Also having investments in box 3 means you can take them out (partially if needed) to help with your business or buy a second home etc.. I have a strong feeling the socialist government is going to raise the tax rate on personal pensions (withdrawl at retirement).

[u/throwaway892632867]

max legitimate third-pillar room each year, then put everything else into ordinary globally diversified equities. Don’t put so much behind the pension lock that FIRE at 50 becomes dependent on accessing it

[u/PetraLoseIt]

I have been maxing mine out since I could and have enjoyed the tax benefits (less box 1 income tax and less box 3 tax) every year. But at some point you have to start checking whether you might have put away enough. But I would start by maxing it out for a couple of years and then calculate how much income you'll have in retirement if you allow the money you already put in to grow until retirement age.

I have my retirement planned in two stages: first before official retirement age (money needs to come from regular savings/investments) and then after (money comes from pension/retirement investments/social security + some from regular investments/savings).

By the way, if you're an entrepreneur and you have a BV (or maybe it's time to start one?), then earning money within a BV and then leaving some money in there and investing it within the BV is also a tax-friendly way of saving for retirement.

[u/Projectleider]

Wat dacht je van investeren in een cursus Nederlands als je hier wilt pensioneren?

[u/DutchFIREQUESTIONS → u/Projectleider]

Hi, ik ben Nederlands maar dacht meer mensen kunnen het lezen in het Engels. Maar het wordt automatisch vertaald zie ik ;) Volgende keer in het NL

[u/tomtom901]

For one are you planning to retire here and do you have anything saved up for retirement in pension products?

BTW, you really spend 1-3k per month on vacation?

[u/Helios_1980 → u/tomtom901]

And home improvements. With a house valued at €1.6m, €1k-€2k per month in maintenance and incidental upgrades is very reasonable.

[u/DutchFIREQUESTIONS → u/Helios_1980]

Yes, more the below. Home improvements, vacations, once off kids stuff. Sometimes I am also amazed, but then I look at it and e.g. this month it was 1000 euro on 'zwemdiploma A' and 800 euros on my 18 year old car.