The best retirement provision
Whether stocks, real estate or traditional pension insurance - there are many options for retirement provision. Here's how you can make the best provision for retirement and the role that statutory pensions, Riester pensions and occupational pension schemes should play.
RETIREMENT PROVISION - THE MOST IMPORTANT FACTS IN BRIEF
The pension system in USA consists of three pillars, also known as layers.
Pillar 1 (statutory pension) forms the basis. This includes statutory pension insurance, occupational pension schemes and Rürup pensions.
Pillar 2 (subsidized pension provision) includes, for example, company pension plans and the Riester pension.
PILLAR 1: STATUTORY PENSION INSURANCE
The statutory pension is often not enough for a good life in retirement. Increased life expectancy means that more and more people are entitled to this form of pension - which is why the amount of pension actually paid out is becoming smaller and smaller. Many pensioners in USA are therefore threatened with old-age poverty.
While in this country the share of the statutory pension in net income before retirement is only around 51 percent, according to OECD data, the average figure for the entire USA is 71 percent. The frontrunner is Croatia with 129 percent of net income, followed by the Netherlands with 101 percent. USA ranks just fifth to last within the EU. Nevertheless, the majority of the population continues to rely on the state pension as the sole means of providing for old age.
For example, a retiree who has paid contributions to the statutory pension scheme for 45 years and always earned an average salary receives just under 1,327 dollar in USA - after deducting health and long-term care insurance contributions and before taxes. This pension is also known as the standard pension.
Note: The basic pension model could reduce the problem of old-age poverty in the future. However, if you want to have a good pension later on, you will hardly be able to avoid a private pension plan.
HOW THE STATUTORY PENSION INSURANCE SYSTEM WORKS
If you pay in more, you get more: If you have paid into the pension fund for 45 years as an employee, you are entitled to a pension at the age of 63 or 65 without deductions, depending on your date of birth.
If you have paid into the statutory pension fund for 35 years, you can also retire at 63. However, your pension will then be reduced by 0.3 percent per month before your regular retirement age.
If you have paid into the statutory pension fund for less than 35 years, you can retire between 65 and 67 at the earliest.
The regular retirement age for employees increases gradually. Depending on the year of birth, insured persons must work longer to receive the full pension without deductions: For example, those born in 1953 can retire at 65 years and 7 months without deductions. Those born after 1964 then retire at 67.
BASIC PENSION FOR ENTREPRENEURS: RÜRUP PENSION
For freelancers or entrepreneurs, there is the Rürup pension, also known as a basic pension. Originally, this form of statutory pension was intended for all self-employed persons who neither pay into the statutory pension scheme nor into a professional pension fund. Contributions are paid out from the age of 60 at the earliest. The advantage of the Rürup pension is that, since the beginning of 2019, the tax allowances are 24,305 dollar for single people and 48,160 dollar for married couples. The contribution assessment limit is 98,400 dollar.
Because of the tax advantages, the pension is also suitable for self-employed high earners who are not compulsorily insured, and high earners with compulsory insurance who supplement their statutory pension with the Rürup pension.
There are two main variants of the Rürup pension: The classic pension insurance as a guaranteed pension, which roughly yields the return of the statutory pension, and the unit-linked pension insurance as well as fund savings plans - with limited or no guarantee, but with higher return opportunities. In the second variant, the Rürup pension is very similar to the fund savings plan of private pension provision - you will learn more about savings plans and investment funds later.
Note: In contrast to the private fund savings plan, the Rürup pension offers the tax advantages mentioned above. However, unlike the private fund savings plan, the credit balance can only be paid out from the start of the pension. The Rürup pension is always paid out monthly. A one-time payout, on the other hand, is not possible. If, for example, a self-employed person encounters payment difficulties, he or she can make the contract non-contributory, i.e. no longer have to pay in, or switch to a minimum contribution. However, the contracts cannot be terminated.
PILLAR 2: COMPANY PENSION PLAN
In the case of a company pension plan, the company usually transfers a certain amount of money each month to a pension contract. The amount saved under the bAV contract is already deducted from the employer's payroll.
The savings contributions can be subsidized by the employer. In this case, the company pays an amount in addition to the salary into a savings contract of an external service provider, such as a pension fund, a pension fund, a direct insurance or a support fund. The administration and acquisition costs can be more favorable in the case of private pension plans because they are spread over more people. The employer may also receive a volume discount from the provider or a rate with lower administrative costs that is specially tailored to the company.
Depending on the implementation method and completion date of the contract, you can have all or part of the money paid out at the start of the pension. Employees have a legal right to save under the occupational pension plan, unless the collective agreement expressly excludes this.
If the company pension is built up by contributions taken directly from the gross salary, this is called gross deferred compensation. The contributions remain tax-free up to a certain maximum amount. However, due to the exemption from social security contributions, the employee's entitlement to a statutory pension, unemployment insurance or sick pay is correspondingly lower.
The employer is obliged to offer at least one of the implementation options for deferred compensation. However, employees cannot demand a specific variant or a specific provider. If the company offers neither a pension fund nor a pension fund, employees at least have the right to direct insurance.
The company pension plan provides state support, i.e. relief. Up to the maximum limit, therefore, neither social security contributions nor taxes have to be paid, as already explained above. The contribution assessment ceiling in 2019 (Western USA) is 6,700 dollar gross salary per month. The assessment ceiling increases slightly each year. Four percent of gross income is exempt from taxes and social security contributions. A further four percent is exempt from tax, but not from social security contributions. This means that a maximum of 536 dollar per month is tax-free, of which 268 dollar are exempt from social security and tax.
According to the recommendation of the NRW consumer advice center, a tax incentive in the savings phase should not be the deciding factor in concluding a contract. It is more important that the contract fits one's own goals, because despite the relief in the savings phase, the pension is taxed before it is paid out. Those with statutory health insurance must also pay health and long-term care insurance contributions during the payout phase.