Retirement planning - the best strategies for your financial security
Does the Riester pension still have a future at all?
Although the Riester pension is a building block for old-age provision, more and more insurers are withdrawing the products from their range. Under the current legal conditions, it is therefore becoming difficult. The problem is that under current law, Riester pensions must provide mandatory premium guarantees. What sounds good to customers at first proves to be a yield killer in the ongoing low interest rate environment.
Legislators therefore actually wanted to reform the Riester pension this year, but failed to do so before the election. I suspect that, depending on the outcome of the elections, there will be a new attempt in the fall. One thing is clear: building up a lifelong supplementary pension via Riester is still worth considering, especially for young families with average incomes. At the moment, however, the offer is simply too confusing, over-regulated and expensive.
Experts from the Scientific Advisory Council of the Ministry of Economics are calling for the retirement age to be raised to 68. If we all work longer, won't retirement planning become less important?
That would be nice. But in fact, even a pension at 68 is no more than a slight adjustment of the statutory pension system to reality. And the reality is that we are all getting older and older. On the one hand, this is good news, but on the other hand, it presents our pension system with an almost impossible task. This is because it is designed so that employees pay for the pensions of all those who no longer work.
You don't need to be a mathematician to imagine what will happen in the future: Pension contributions will rise because employees will have to provide for more and more pensioners. At the same time, pensions will fall - for the same reason. The gap will continue to widen. That's why private pension provision will not become less important, but more and more important.
Keyword private pension provision: What is the perfect strategy for this?
First of all, I recommend taking stock. Many people have more pension components than they think: statutory pension insurance, company pensions, Riester and Rürup, life insurance, a small inheritance or a condominium - all of these can make a contribution.
Then comes the question: How much money do I actually need in old age? A rule of thumb says 80 percent of your last salary, but it depends on your own circumstances.
Now you can compare: If the need is higher than what I can expect, private provision is needed for the gap. Again, a rule of thumb: set aside at least ten percent of your income. If you don't have any statutory pension insurance, it's better to save twice that amount.
Between the statutory pension and purely private provision stands the occupational pension. For whom is this the right choice?
Nowadays, company pensions usually work by means of so-called deferred compensation. This means that employees pay part of their salary into a pension plan instead of having it transferred to them. In Germany, all employees have a legal right to this.
What's more, the law specifically promotes company pensions.
First, it does not require any taxes or social security contributions on the converted salary.
Secondly, employers have to pay an additional 15 percent, and many voluntarily pay even more.
This means that for 20 euros less net salary, 50 or more euros quickly flow into the pension plan. That is attractive. But I don't want to hide the disadvantages:
First, the conversion of salaries reduces the later statutory pension entitlement, because no pension contributions are paid.
Secondly, the state will later demand taxes on the company pension, and insurance contributions may also become due in old age.
Nevertheless, the bottom line is that it is usually worth it. And don't underestimate it: Company pensions are automatically deducted from your salary. That's a great disciplining factor.
And when should I start looking into retirement planning?
I'm a bit split on this question:
My head says as early as possible. If you save sooner, you'll save longer, and you'll be able to create more wealth with lower contributions thanks to compound interest alone.
But the heart says: Putting aside your first self-earned money for your own pension in your early 20s instead of having a little fun with it now is quite an imposition. And that's probably not going to be the reason 50 years later.
And here's another thought: It doesn't make much sense to worry about retirement many decades from now, as long as the road to that point hasn't been covered at all. That's why smart retirement planning starts with building up an emergency reserve, securing one's own working capacity and, if necessary, reducing debts. All of this is often forgotten, but it is just as important as looking to the distant future.