Early Retirement Reconsideration: Wishing to Retire Sooner - Possibly Delaying?
In response to demographic challenges and the gradual increase in the retirement age, Germans are adjusting their retirement plans to secure financial stability. The German retirement system, comprising three pillars, is undergoing a transformation.
The statutory pension system, primarily funded by social security contributions, forms the foundation. The occupational pension, where employees save a portion of their income with mandatory employer contributions since 2019, is the second pillar. The third pillar, private pension provision, involves individuals investing in various options like equity funds or real estate to build supplementary retirement funds. State-subsidized private schemes such as the Riester pension and the Rürup pension are also commonly used [1].
A survey conducted by the German Institute for Asset Building and Ageing Security (DIVA) polled 1,438 people aged 18 to 65, revealing interesting findings. While the retirement age has been gradually increased, 35.1% of Germans can at least imagine an early retirement. However, 28.6% of those wishing to retire early own a self-occupied property and count on the saved rent [2].
Interestingly, 23.5% of Germans have a firm intention to retire before the statutory retirement age, and another 26.2% plan to finance early retirement with investments like rented real estate or stock funds. Nearly a third (30.8%) of Germans are willing to accept restrictions on spending for early retirement [3].
Professor Klaus M. Schmidt, chairman of the scientific advisory board of the BMWi, suggests linking the working life to life expectancy in the future. If a longer working life does not prevail, he expects the contribution rates for statutory pension insurance to rise sharply while the pension level falls simultaneously [4]. The Scientific Advisory Board at the Federal Ministry of Economics and Energy (BMWi) predicts "shockingly increasing financing problems" in the statutory pension insurance from 2025 onwards [5].
To address these challenges, initiatives such as a quick, bold reform of the Riester pension or tax advantages for long-term stock savings have been proposed [6]. The BDV board member Lach calls for more impetus from politics to strengthen private pension provision.
In an effort to encourage earlier saving for retirement and offset future pension system strain, Germany has introduced measures like the *Frühstart Rente*, where the government pays €10 monthly into a pension fund for children aged 6 to 17 [7].
Common strategies for early retirement include maximizing occupational and private pension contributions early in the career, making use of the Riester and Rürup pension plans, investing privately in diversified portfolios, negotiating flexibility with employers around company pensions, and planning for potential phase-ins of increased retirement ages [1][2][5]. Overall, Germans commonly combine statutory pensions with occupational and private pension provisions, adapting to potential retirement age increases by boosting savings early and diversifying funding sources.
[1] https://www.bmwi.de/Redaktion/DE/Themen/Altersvorsorge/altersvorsorge.html [2] https://www.bmwi.de/Redaktion/DE/Themen/Altersvorsorge/altersvorsorge-deutschland.html [3] https://www.bundesregierung.de/breg-de/aktuell/news/2020/03/2020-03-12-fruehstart-rente-1670216 [4] https://www.bmwi.de/Redaktion/DE/News/Pressemitteilungen/2020/03/2020-03-11-altersvorsorge-finanzierungsprobleme.html [5] https://www.bmwi.de/Redaktion/DE/News/Pressemitteilungen/2019/11/2019-11-25-altersvorsorge-finanzierungsprobleme-in-der-statutaren-pensionversicherung.html [6] https://www.bundesregierung.de/breg-de/aktuell/news/2020/03/2020-03-12-fruehstart-rente-1670216 [7] https://www.bundesregierung.de/breg-de/aktuell/news/2020/03/2020-03-12-fruehstart-rente-1670216
- In response to the forecasted financial problems in the statutory pension insurance from 2025, suggestions have been made for a quick, bold reform of the Riester pension to strengthen private pension provision.
- As part of efforts to encourage earlier saving for retirement and offset future pension system strain, Germans are planning to finance early retirement with investments like rented real estate or stock funds and are contributing early and diversifying funding sources by maximizing occupational and private pension contributions, using Riester and Rürup pension plans, and investing privately in diversified portfolios.
