Many Germans dream of an evening without worries. Finally time for the finer things in life: holidays on the beach, language trips to China, city trips and classy restaurants. If you want to enjoy your retirement to the full, you have to start planning early. But more than half of Germans do not make private provision for old age, shows a recent study by the Berlin fintech company Weltsparen. And even if you take precautions, you don’t automatically get everything right. An overview of the most common pitfalls in retirement planning.
# 1 Postpone retirement planning
Too young, too little money: Many Germans postpone their own retirement provision year after year. That takes its toll in old age: the later pension savers put money aside, the less they benefit from the so-called compound interest effect. He describes how capital increases enormously over the years when investors reinvest the income. The higher the interest rate and the longer the period, the stronger the effect. This also increases the additional pension that pension savers can expect in old age.
# 2 Choose low-yield pension products
Many Germans avoid the capital market because they shy away from risk. However, if you want to invest your money sensibly for your retirement, you cannot avoid shares. For retirement savers, the risk is manageable – at least if they invest long-term. A look back shows: Investing in large stock indices has always paid off for investors if they have held the stocks for several decades. The German leading index Dax, for example, has increased its value by 1200 percent since the index was introduced 30 years ago – despite several financial crises and crashes.
# 3 Underestimating the pension gap
The statutory pension will not be enough to maintain the current standard of living in old age. Most Germans realize that much. However, many German citizens have no idea how big their pension gap really is. Accordingly, they do not know how much money they have to put aside for a carefree retirement. The rule of thumb for calculating the pension gap is: Financial requirements in old age minus income from statutory and private pension plans. There are numerous tools on the Internet with which savers can determine the amount of their personal pension gap with just a few clicks, including those from the German Institute for Retirement Provision. The federal government is also currently working on a nationwide “pension cockpit” with which German citizens can keep an eye on their entitlements at all times. It should start in the coming year.
# 4 Leave money behind from the state
Retirement savers do not have to shoulder their retirement provision alone. The state supports citizens who make private provision for their pensions with various measures. The best-known promotion is probably the Riester pension. It consists of three parts: the basic allowance, the child benefit allowance and the tax savings. The contributions can be deducted from the tax, because “Riestern” falls under the so-called special expenses. Important: In order to receive the full funding, Riester savers must pay in at least four percent of their gross annual income. In addition, they usually have to be legally insured. The state supports the self-employed who do not want to voluntarily pay into the statutory pension with the Rürup pension. Here, too, the contributions can be deducted from tax.
# 5 Too little stamina
Regardless of which form of provision you choose: the most important thing is perseverance. Anyone who changes their strategy too often must expect financial losses. Because when you switch, there are always costs – be it acquisition fees for insurance contracts or trading costs for shares trading. In the capital market in particular, savers should plan for the long term and not react to every market fluctuation. It is not for nothing that an old stock market adage goes: “Back and forth makes pockets empty”. Investors should seek professional advice and work with an independent financial professional to develop a strategy that suits them and their life situation. Then nothing stands in the way of a carefree retirement.