Retirees usually need less money than younger people. For example, because they have already paid off their property. But by how much does the monthly budget actually decrease? It’s less than some think. If you are not careful, you risk poverty in old age. On the other hand, private pension schemes help.
The Swiss money professionals at Zürcher Kantonalbank (ZKB) have determined that retirees have to reckon with 70 to 90 percent of their previous expenses. This does not only apply to our western neighbors – experts have also determined similar values for Germany. For example, a study by Stiftung Warentest. According to this, pensioners in Germany need around 80 percent of their previous net income if they want to maintain their accustomed standard of living in old age.
The study is not entirely new. But also because of the currently high inflation, the value should hardly be exaggerated. So the assumption is valid: Seniors keep around 80 percent of the costs that they had during their active working life.
The biggest expense is housing. Millions of renters know the problem. However, owners do not live for free either. If you live in your own property, you save on the monthly rent. Owners always have to reckon with expenses for repairs and renewals – but the bottom line is that they come out cheaper than renters. Statistics show that. Among the seniors with the comparatively greatest wealth are those who own real estate. Even if they don’t live in it themselves, they can use their rental income to pay their own monthly rent.
There are also specific costs that decrease or increase with age.
If you dare to take a look at your economic situation in old age, you have to answer two questions:
Statistics provide a partial answer to the first question. According to the German Pension Insurance (DRV), in 2021 the standard pension was 49.4 percent compared to average earnings. With this number, experts speak of “pension level”. According to the DRV, it describes “the relation between the amount of a pension (with 45 years of contribution payments based on an average income) and the average income of an employee”.
With all the question marks – for example with regard to a 45-year deposit phase – the value mentioned shows that the statutory pension only covers almost 50 percent of the average income. On the other hand, seniors have to reckon with around 80 percent of the previous costs even in old age. So there is a gap. Below are a few tips on how employees can close them.
Experts speak of a “pension gap” when they want to make it clear that the statutory pension only covers part of the previous earned income. Here is an example.
Assumption: A 50-year-old employee has a gross monthly income of 4200 euros.
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The sample calculation shows: Although the “model pensioner” has numerous sources of income in old age, he is missing a good 43 percent with the calculated monthly financial requirement of 2320 euros with 1009 euros.
Most people don’t even take one factor into account: high inflation can significantly reduce the value of even a sizeable pension over the years, as the table above shows.
An expected monthly pension of 2,000 euros is worth just 1,219 euros after 25 years with an inflation rate of 2.0 percent. If the monetary depreciation is 3.0 percent, the value of the monthly 2000 euros falls to 1488 euros in just ten years.
People with statutory pension insurance should already think about how they want to live when they retire while they are still working – and what the costs will be. Here you have to use estimates and empirical values as a basis, because not all later requirements can be precisely quantified in advance.
In order to find out how much money they need in old age, consumers should create an overview that is as accurate as possible and list their types of income.
To do this, active employees can take their running costs as a basis and extrapolate them to the retirement phase. A household book, in which consumers enter all costs, helps with this.
These include
When it comes to regular costs, however, some items are reduced or completely eliminated for seniors. For example, the expenses in connection with the professional activity (clothing, external meals, possibly a car or local transport tickets for trips to the company). In addition, of course, the contributions to the statutory pension insurance and, if necessary, payments into a Riester savings plan.
On the other hand, some costs increase with age – such as health expenditure. Expensive hobbies such as regular travel cost additional money.
The FOCUS Online Guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
In order not to run the risk of poverty in old age, employees should not only rely on the statutory pension during their active professional life, but should also make private provisions for old age.
There are numerous ways to do this.
The company pension scheme (bAV) offers several advantages:
The employer converts part of the employee’s gross salary directly into a company pension scheme. The state subsidy consists in the tax authorities not demanding any taxes and social security contributions on these amounts during the savings phase – up to certain limits:
In principle, a maximum of eight percent of the western contribution assessment limit may be converted tax-free per year. That is 6768 euros in 2022.
In addition, four percent of the BBG West remain exempt from social security contributions – i.e. 3384 euros. An employee who invests this contribution in direct insurance, for example, can save well over 1000 euros in taxes and social security contributions in 2022. And gets an additional pension in old age, for which, however, income tax is then incurred.
Both are forms of private old-age provision that are financially supported by the state.
In order to receive the maximum allowance, working people must pay in at least four percent of their pensionable income – minus the state subsidy.
The following also applies: so that low earners can benefit from the Riester pension, the basic amount for the Riester pension is 60 euros per year. Low-income citizens only have to pay this basic amount to receive full government support.
Those who riester can claim their own contributions as special expenses for tax purposes. No taxes then apply. This is possible for amounts up to a maximum of 2100 euros per year. The higher the personal tax rate – i.e. the better someone earns – the greater the savings effect for the employee.
Families with several children benefit the most from the Riester subsidy – thanks to the high child allowances.
The Rürup pension (also called “basic pension”) is primarily aimed at self-employed people with high incomes who do not pay into the statutory pension insurance or make other provisions for old age. You can make the most of the potential tax benefits.
In 2022, 24,100 euros will be tax deductible as part of the Rürup pension – with correspondingly high tax savings.
High-earning employees can also take out a Rürup policy. With them, the contributions to the statutory pension insurance are deducted from the maximum rates for the Rürup pension – both the contributions of the employee and the employer. That pushes the tax savings effect.
Anyone who buys real estate saves on the monthly rent if they use the apartment themselves. If he rents out his property instead, he regularly earns money.
As a result of the ECB’s zero interest rate policy, real estate investments were in high demand for years. This has led to massively increased prices, especially in the metropolitan areas. The ECB is currently preparing the markets for rising interest rates. One consequence: the interest rates for building loans have long left their low point. Nevertheless, they are still cheap in a long-term comparison.
But complete financing on credit is out of the question because of the high costs: Anyone who relies on a property as a retirement provision must be able to raise a five-digit amount as equity.
Supply chain problems and the Ukraine war have brought the years of soaring stock markets to an abrupt end in recent months. In addition, increases in key interest rates worldwide are currently having a negative impact on the performance of shares. Nevertheless, this form of investment offers attractive long-term return opportunities.
Investors should follow a few simple rules: Instead of relying on individual stocks, we recommend buying ETFs (Exchange Traded Funds). They contain a large number of values and can thus cushion the loss of value of individual investments. Another advantage: ETF providers only charge low fees.
Some ETFs invest globally. This smoothes out the price risks of individual national stock markets. If you want to spread your investment as widely as possible, you should put an ETF on the world stock index MSCI World in your portfolio. These products distribute their investments in around 1600 individual stocks from 23 industrialized countries. One such ETF is the iShares CORE MSCI WORLD UCITS ETF.
If you don’t have large amounts to spare, you should choose an ETF savings plan. Money flows monthly into the selected ETF. Individual providers make this possible from as little as ten euros per month.
If you want to invest in an ETF (Exchange Trade Fund), you need a cheap securities account. Compare Germany’s online banks and neo-brokers according to offer, price and service and then buy your first ETF.
