Everyone uses investing for retirement
Who does not rely on the pension insurance should pay attention to it.
Many younger people do not consider saving as a retirement plan. Saving money for old age isn't necessarily "sexy" - after all, we're living now, right? In fact, even saving yourself as a supplement to retirement insurance can be very attractive if you do it right. We'll show you what's important.
Why the state pension won't be enough for you in old age
Let's assume that you have already worked for a few years in your current job and will continue to work in the future. In order to finally get the full pension in old age, you have to pay into the pension fund for 45, in words “forty-five” years. If you now assume that you will get a large pension for it, you are wrong. Because the pension level is actually currently 48%. In other words: If you assume that your salary is roughly the same as the German average, then after 45 years of work you will only receive 48% of your last gross salary as a pension. For a lifetime, but with half your income you may not be able to keep your standard of living so simple.
What you should know: In this example we assume 45 contribution years. Only very few employees reach this number today. When you retire at 65, you must have already worked with social security contributions at the age of 20. But with internships, a degree and a voluntary social year, many people only start working in their mid-twenties. The opportunity to achieve the full contribution years for the statutory pension is therefore reduced.
And something else: From 2045, the pension rate should only be 43%. Your pension will therefore shrink even further.
Therefore, you should definitely think about a supplementary pension to the state pension. This could be, for example, saving to build up private wealth.
You can do that against impending old-age poverty
As you may know, the old-age provision of the German pension system consists of three pillars. The statutory pension is only one of the pillars. To prevent old-age poverty, you should supplement the statutory pension. If you are self-employed, private pension provision is an indispensable requirement.
What can you do?
- company pension scheme (bAV): If you are employed, you have the right to a company pension. Talk to your employer about it. Some companies offer their employees, for example, direct insurance or a pension fund. In these cases, the employer pays you into a company pension fund, from which you then receive payments in retirement. Alternatively, you can opt for "deferred compensation". Part of your gross salary is used for company pension schemes. Your employer can still add something. The advantage: You save taxes, as the conversion of your salary reduces your gross wage. To do this, you have to pay full tax on the pension from the company pension later.
- private pension insurance: As part of private pension provision, you can top up the statutory pension with a private pension contract. There are different models from different insurance companies on the market.
- state-sponsored, private pension: If you are employed, you can "Riestern". This means that you take out a state-sponsored Riester pension. This is a pension insurance for which you get a supplement from the state every year. If you have children, you will also receive a supplement per child. The prerequisite for full funding is that you pay at least 4% of your gross income from the previous year into the contract.
There is also a state-subsidized pension for the self-employed. It is called the "Rürup pension". It has the advantage that you can fully deduct up to EUR 24,305 of your insurance contributions each year. The Rürup pension is therefore a very attractive tax-saving model during the payment phase.
- Saving and personal wealth accumulation: A very exciting option as a supplement to the state pension is saving. There are many options available to you here that go far beyond putting money in the savings account. Our article should therefore not read "Save yourself instead of pension insurance", but rather "Save yourself for pension insurance". We'll explain why right away.
Why is it useful to save as a supplement to the statutory pension?
As a supplement to the state pension, saving has many advantages, which we list here for you:
- Greater flexibility: When you save, you have many different investment options to choose from. You are not always tied to a long investment period, but can always use your free capital where you get the most interest or return.
- Chance of higher returns: The free choice of your investment options gives you the opportunity to always get the highest return. Depending on the individual risk, the return can be significantly increased compared to traditional private pension insurance.
- Greater independence from individual providers: If you only concentrate on one provider for your private retirement provision, you are completely dependent on its economy. When you save, your dependency decreases, because you can distribute your money yourself in different "pots".
How do I save for my pension?
Just over a decade ago, before the financial crisis, individual saving was still comparatively easy. Because even the savings account yielded more than 2% interest, which with continuous savings made itself clearly noticeable on the assets through the compound interest effect. But now the savings book is not a real alternative due to zero interest rates.
Instead, there are better ways to save:
- ETFs: These are so-called "index funds". They map a stock index and are traded on the stock exchange. With this form of investment, you are practically investing in many stocks at once with one form of investment. This reduces the risk of total losses. But the return is not as high as with riskier forms of investment. With a little perseverance and patience, you can save well for your retirement. That is why ETFs are particularly worthwhile for long-term savings.
- Savings plans: With a bank savings plan, you invest a fixed monthly amount, which the bank then continues to invest in various financial products. Depending on your willingness to take risks and your desired returns, there are savings plans that invest primarily in equity funds, but also savings plans that invest in index funds, i.e. ETFs.
- Property: Buying a property is a very practical form of saving. If, for example, you are investing in a property at a young age, you can live in it yourself in retirement and thus save the rent. Or you rent out the property and use the income to top up your pension.
How much money do I have to save to match the benefits of a pension insurance?
If you save yourself to supplement your state pension, you definitely have to save a six-figure sum. As a rule of thumb, 190,000 euros apply to enable a monthly payout of 1,000 euros at retirement age. A life expectancy of 80 years at retirement age is assumed to be 65 years.
If you want to have a higher standard of living and you assume a higher life expectancy, you have to increase the amount accordingly. Some insurance companies calculate for private pension insurance, for example, around 250,000 euros for a pleasant retirement.
Depending on the time to retirement and a realistic interest rate on the investment, the required monthly savings for a target amount at retirement age can of course vary widely. As an example, however, with a monthly investment amount of 500 euros at an interest rate of 2.5%, significantly more than 190,000 euros can be saved in 25 years.
10 practical tips for saving for retirement
The sooner you start saving for retirement, the better.
Small amounts are also useful.
It is important that you save money regularly.
Get as little debt as possible and you can save more for retirement.
Check your savings model regularly to identify potential returns.
It is best to open a call money account to flexibly invest free capital.
When saving long-term for retirement, make sure you have secure investments.
Rely on many different investment options when saving instead of retiring.
Use a savings mix of long-term, medium and short-term investments.
Plan for the next few years and not overnight.
Conclusion: Saving for retirement can be worthwhile
Saving today has nothing to do with savings accounts and World Savings Day. Rather, you have modern options for "pension savings" with ETFs or savings plans. They are flexible and offer you an attractive return to top up your statutory or private pension insurance in old age.
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