Flexible working is currently the order of the day in companies. But most Germans prefer it even more: flexible cessation. All surveys show again and again that the desire for an earlier retirement is very widespread. Finally realizing long-cherished dreams or simply enjoying the free time you have gained – everyone has their own idea of what they would like to experience when they are no longer tied to work.
Whether snoozing in a sun chair on a dream beach, surfing at exotic hotspots, going easy on your bike, unwinding while sailing, enjoying a picnic in the country with family and friends, improving your handicap in golf or, or, or: with the newly gained independence, the world opens up to you again. It’s no wonder that most Germans would rather strive for this sooner rather than later, on average at just under 61 years of age.
Is this realistic?
Absolutely. But certainly not without your own commitment! In order to do that, you have to overcome a number of hurdles. It is now a truism that the statutory pension is not enough even at the regular retirement age. The annual increases are just a drop in the bucket. Even if, like this year, they are extremely generous with 4.39 percent in the west and even 5.86 percent in the east.
So a few numbers on the status quo:
- Average pensions usually vary according to area of residence, gender, contribution period and retirement age between 700 and a good 1200 euros per month .
- With 64.1 years on average, the pension begins and will 20.5 years related long.
- Over 80 billion euros flow annually as a federal grant into the system so that it can meet its payment obligations at all.
- Anyone who is 65 or older today will receive it only around 60 percent of his gross income from statutory retirement benefits. The remaining part must be financed from other sources.
This is especially true if the wish for a faster job exit is to be realized. So there is only one thing that can help: build up sufficient capital as early as possible to maintain your standard of living in old age and to compensate for further imminent losses.
Too little for the standard of living
The old-age pensions actually paid are often significantly lower than the retirees had hoped for. The average is often less than 1000 euros per month.
To reach the goal
Because those who retire earlier usually receive lower benefits. The legal requirements must therefore always be clarified as a starting point for the capital requirement on the individual Independence Day. You can read here how the system works in principle. However, nobody should be discouraged by gaping supply gaps. Even if the sums to be saved with the early-retirement formula from FOCUS MONEY (see below) may seem difficult to achieve at first glance: Trust the capital market, regular savings plans work wonders (“Invest correctly for the long term”) . If you plan clearly and stick to it consistently, you can actually make your flexible retirement dream come true with your own hands.
Statutory pension – This is how the state pension system works
The early retirement formula
1. Calculate your pension gap
There are pension calculators to help you so that you don’t have to laboriously and complicatedly work out your personal regular pension gap for retirement.
The insurance association’s calculator (www.dieversicherer.de/versicherer/rentenrechner) is also suitable for calculating the gaps, as it provides numerous variable input options and calculates net amounts for the results – both for income and for old-age pensions. All requirements can be managed using flexible sliders.
First of all, the year of birth and the current net income must be specified. After that, it’s all about the personal desired pension in retirement. The default is 80 percent of the current net, since there are usually fewer expenses in old age than in working life. But you can vary this according to your own plans.
You can use the “Settings” button to flexibly take into account expected future salary increases and – importantly – an assumed inflation rate. This automatically changes the corresponding values for the statutory net pension at the start of retirement. In addition, you can specify the earnings points you have already earned for the statutory pension, which you can find in your annual pension notification. Also whether western or eastern values of the contribution assessment limit for the pension apply. In addition, any private pensions already saved can be integrated. All of this then shows your already existing normal pension gap.
And finally, you can also move your desired retirement date forward, between the ages of 63 and 67. The monthly pension is then recalculated and increases your pension gap according to the additional losses. Feel free to play with the flexibility of each component to see the effects of each. Once you have finally decided on specific information, your personal monthly pension gap will be displayed in a second step. Attention: The calculator only goes up to the earliest possible retirement age of 63 years. If you want to quit sooner, please note step 3 to build up additional capital.
2. Fill your pension gap
Multiply the calculated monthly pension gap by 12 to determine the regular annual amount required. Then choose a strategy from pages 20 to 23 based on your personal risk/reward profile with which you want to generate this sum. However, since this is the net amount and you fill the gap with capital gains, you still have to include the annual flat rate withholding tax, i.e. a total of 26.375 percent with the solidarity surcharge. So divide the yearly amount by 0.73625 and you have the gross income required annually. Now calculate the capital required for this at the start of your pension. The formula for this is:
- Capital requirement = annual pension gap : rate of return
Example: You have a monthly pension gap of 1500 euros, so you need an annual gross income of 24,448 euros and choose the DWS Aktien Strategie Deutschland (10.6 percent) for this. A capital of around 230,642 euros is then required at the beginning of the pension (24,448 divided by 0.106). Mind you, you cover the gap for life with only the income from your investment, without capital consumption. The share capital can also serve as a buffer in case things don’t go so well on the stock exchange. If it runs better later, you can refill it.
3. Consider possible special capital
This could be an inheritance, for example. So you may reduce the calculated capital requirement by your expected inheritance. According to studies by the German Institute for Old-Age Provision, every German with two heirs inherits an average of around 181,000 euros per inheritance.
And vice versa: If you want to retire before the age of 63, you have to take into account that you will be without work or pension income for the years up to that point, and therefore save the necessary additional amount. So, for each year earlier, add your gross desired annual pension as well as further voluntary payments into the statutory pension insurance up to the age of 63 to your capital requirements (see also “How the state pension scheme works”).
4. Build the necessary capital
To do this, simply use the “savings calculator” at www.zinsen-berechner.de, for example. Enter your specific values there in order to calculate the necessary monthly savings rate. So the initial capital is zero, the interest rate is the fund you selected for capital accumulation on pages 20 to 23, the savings period is the years that you can save from today until the desired start of your pension, and the final capital is the capital requirement you have calculated. Then take into account the tax rate for capital gains (26.375 percent) and possibly also the annual tax allowance with a click – and your very personal early retirement plan is ready. If there is a tweak in one place, you can make variable adjustments everywhere.
Prime example: The two of you will soon be retired
The DINKS (Double Income No Kids) couple would like to retire at the age of 63, which is officially the earliest possible retirement age, and they also accept the hefty reductions in their salary. However, at 49 they are a bit older and only 14 years remain to realize the plan in order to raise the financing. In doing so, they can fall back on pension entitlements that have been saved up elsewhere, totaling EUR 1,500, but they tend not to expect large special payments.
1. Calculate pension gap
A partner has a monthly net salary of 4000 euros and has acquired 45 payment points. In addition, he can calculate with 1000 euros per month from private provision.
The other partner receives at least 3000 euros net, has accumulated 35 points and can also count on a small additional pension of 500 euros. Salary increases are less possible in the remaining time and are set at two percent.
Because of the high current inflation, they calculate with an average rate of increase of three percent. The joint net pension is then 3679 Euro – legal and private.
With an 80 percent desired pension of the last net of 5600 euros, there is a net monthly pension gap of 1921 euros at the age of 63.
2. Fill the pension gap
This means a gap of 23,052 euros per year, with tax burden a gross income of 31,310 euros. Preferring stable classics, the pair favors the DWS fund Aktien Strategie Deutschland LC (ISIN DE0009769869) with a return of 10.6 percent pa With the earlier-in-retirement formula, the desired start of retirement would be in 14 years 295,377 euros capital necessary.
3. Special capital: None
The couple does not have to bridge additional years financially because the statutory pension is paid from the age of 63. Conversely, however, it cannot calculate with larger grants for the financial plan.
4. Required Capital Raising au
For the savings phase of only 14 years, the couple actually wants to remain loyal to the DWS fund Aktien Strategie Deutschland LC (ISIN DE0009769869). That would be from now on 968.72 euros per month to put back. If, on the other hand, you were to bet on the promising SKAGEN fund Glabal A (ISIN NO0008004009) with an annual return of 13.5 percent, you would have to pay EUR 818.49 a month.
The result shows: It is rarely too late to finance an earlier pension. More money must then be put aside each month in the remaining time. This is usually also possible, as according to surveys, the higher DINKS semesters also have significantly more capital available for this – 70 percent have a net household income of at least 3500 euros and significantly more.
Or in another variant, more promising fund savings plans are to be chosen in the hope that the fund will continue to perform strongly over a shorter period of time. Either way: even in later years, the dream of an individually determined job exit can still come true.