As of: February 6, 2024, 5:11 a.m
By: Sebastian Hölzle
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If you want to retire earlier, you have to beware of pitfalls - and pay attention to upcoming deductions, don't forget taxes and get information early.
The pitfalls for early retirees at a glance.
Munich - No more going to work, more time for family and hobbies: If you want to retire earlier, you have the opportunity to do so in Germany - but you should think carefully about it.
Trap 1: Informed too late for early retirement
Employees should address the issue years before retirement and make a financial contribution.
“That means: You check your individual income and expenses,” says Sandra Wissen from the German Pension Insurance Bayern Süd.
This helps you get a feel for whether you still have savings potential and, above all, what kind of income you would like to achieve in old age.
“The latest pension information, which you generally receive, is helpful for this,” says the expert.
“In this you will find an indication of what amount you can expect when you retire.” The experts from Finanztest magazine advise: “Go to retirement planning advice from the statutory pension insurance when you are in your early 50s.” This will give you an idea of what your future pension will be.
If you want to retire earlier, you have the opportunity to do so in Germany - but you should think carefully about it.
(Archive image) © IMAGO/Peter Widmann
“Advice discussions with the statutory pension insurance are free and neutral,” emphasizes Sandra Wissen.
“We inform you about the pension options available and, if desired, we can also arrange a cash register with the interested party.” The pension insurance professionals can be reached free of charge on: 0800/1000 48 00.
Trap 2: Too little private savings for early retirement
“If you want to leave your working life more quickly, you have to replace your salary with other sources of income that last as long as possible,” says Stiftung Warentest’s guide to
early retirement
.
The statutory pension alone may not be enough to cover all expenses in old age.
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Anyone who is still working and is considering an early retirement should not neglect private pension provision.
“Stocks or index funds such as ETFs are particularly suitable as basic building blocks for early retirement planning,” write the experts.
An ETF savings plan allows you to save even with small monthly amounts.
Trap 3: Discounts are underestimated
Since 2012, the standard retirement age has been gradually raised from 65 to 67 for those born after 1947.
For those born after 1964, the standard retirement age in 2031 is 67 years.
Rule means: There are also exceptions.
“The earliest retirement age is generally 63,” says Wissen.
Anyone who is at least 50 percent severely disabled or has health problems, i.e. is unable to work, can retire even earlier.
However, early retirees have to cope with financial losses: “Anyone who retires at the age of 63 has to accept reductions of up to 14.4 percent on their monthly pension,” says the expert.
Requirement: You have at least 35 years of insurance in total.
Sandra Wissen gives an example: Someone was born in 1961 and would therefore normally retire at the age of 66 years and six months.
If the person has at least 35 years of insurance, the person can retire at 63, but would have to accept a deduction of 12.6 percent.
If the person continues to work beyond the age of 63, the deduction is reduced by 0.3 percentage points for each month that the person continues to work.
“Anyone who takes advantage of this option of early retirement and as a result has reductions in their pension must know that the reductions will remain permanent,” warns the expert.
Only those who have worked a lot in their lives can retire earlier without deductions: Anyone who was born before 1953 and had at least 45 years of insurance was able to receive a pension without deductions at the age of 63.
For those born later, the possible retirement age for this old-age pension increases gradually from 63 to 65 years.
For those born in 1964 and all those born later, the pension without deductions is available at the earliest at 65.
Trap 4: Tax not taken into account
Subsequent taxation has existed since 2005.
“Pension contributions that are paid into the statutory pension insurance can, on the one hand, be deducted from tax.
On the other hand, the statutory pension is subject to percentage taxation in the payout phase - depending on the calendar year in which retirement occurs," explains Wissen and gives an example: If someone retired in 2022, for example, 82 percent of their pension is considered "taxable income".
However, the pension insurance cannot say in advance whether taxes actually have to be paid and, if so, how much, as this always depends on other factors - such as other sources of income.
It is important: When planning an early retirement, those affected should be aware that part of the pension can go to the tax office.
Trap 5: Planning without health insurance costs
If you want to retire earlier, you should not forget when planning that insurance contributions will be deducted from your pension.
“Many people forget that,” warns Wissen.
“The pension amounts shown in the pension information are always gross amounts.” Those with statutory health insurance would have to pay around twelve percent of their pension to the health insurance company.
Author: Sebastian Hölzle