What the dream of early retirement costs

And goodbye! The dream of early retirement can only be fulfilled with a financial cushiondpa

Germans are getting older – and yet they don’t want to work any longer. Those who retired in the previous year were on average 64 years old and thus stopped working over a year and a half earlier than the state would like. This is shown by current data from the German pension insurance. Raising the standard retirement age to 67 is likely to widen the gap.

In particular, the coming retirement generation does not want to work until shortly before their 70th birthday, shows a survey by the Bergische Universität Wuppertal. Only 56 percent of the respondents agree that they will very likely work until the official retirement age. 54 percent, on the other hand, want to get out of their job as early as possible.

In Germany – in contrast to the Netherlands, for example – it is possible to retire earlier and still draw a state pension. The early retirement, however, has a catch: the earlier employees leave working life, the higher pension deductions they have to accept. Not everyone can therefore afford to put their legs up before the age of 67.

Exception for particularly long-term insured persons

For each month of early retirement, the German Pension Insurance (DRV) deducts 0.3 percent from the pension benefit. Those who retire four years earlier, at the age of 63, have to give up 14.4 percent of their gross pension for life. The average monthly pension in Germany is 1360 euros. In this case, early retirees only had 1164 euros left. In fact, it is even less: In addition to the deductions, early retirees also miss the contributions they would have paid in the four years up to regular retirement.

There is only one exception to this rule: particularly long-term insured persons. Anyone who is at least 63 years old (born in 1964 or later: 65 years old) and has had statutory pension insurance for 45 years can retire earlier without any deductions. In addition to pure working hours, sickness, child-rearing, military and community service can also be taken into account. In 2018, 72 percent of new retirees took advantage of this option, as data from the DRV show. A total of 15 percent of DRV members currently receive a pension under this exemption.

In the long term, this number is likely to decrease as more and more young people start studying. Students achieve their bachelor’s degrees at an average of 23.5 years, while they complete the master’s at an average of 26.1 years. This is what the Federal Statistical Office recorded for 2018. Anyone who does not already go to work while studying can therefore not even reach the working hours that are necessary for early retirement without deductions.

Voluntary special payments

Anyone who nevertheless wants to retire earlier can reduce their deductions through voluntary special payments. More and more employees are taking this path: In 2012, only 933 insured persons paid voluntary additional benefits to the pension insurance; in 2017, according to the DRV, there were already 11,620. In order to be able to retire without a deduction, insured persons must inform the DRV when they plan to retire. On the basis of this date, the pension fund calculates how high the expected deductions are and how much the insured person has to pay as compensation in the form of special payments.

An example from the DRV: The expected pension is 1200 euros, but the insured would like to retire three years earlier. To offset the lifelong deductions of 10.8 percent per month or 130 euros, he would have to pay an additional 32,821 euros. The insured must weigh for themselves whether this special payment is worthwhile. However, the special payment does not oblige you to take early retirement. Those who change their mind can simply work longer and have topped up their normal old-age pension.

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