This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
For many people, the statutory pension is not enough for retirement. Currently, pensioners who have paid the average rate into statutory pension insurance for 45 years receive around half of their last income, i.e. a gross pension of 1,692 euros. Of this, only 1,456 euros remain net. That’s why private provision is required – even if retirement is just around the corner or has already begun. If you have some money left over from a paid-out life insurance policy, an inheritance or your savings, you have the following options available:
Private pension insurance companies pay a monthly or annual pension until the end of life. (Pre-)retirees can also conclude such contracts shortly before or during retirement by investing a larger one-off sum in an immediate annuity. You can choose between classic and unit-linked pension insurance; in the latter, the insurer invests the money in the capital market. In both cases, the predicted pension entitlement is divided into a guaranteed pension and a higher possible pension. The higher possible pension is only available if the insurer generates surpluses and pays them out. The performance of the investment plays a role in the fund product.
Private pension insurance has the advantage that it provides a secure pension for the rest of your life. Even if an insured person turns 100 and is therefore significantly older than the average (78 years), they will continue to receive their monthly pension. However, this security comes at a high price: if, for example, a 67-year-old invests 50,000 euros once in a unit-linked pension insurance that starts immediately, according to a comparison portal, he will receive a maximum of 1,827 euros in guaranteed pension per year or 2,734 euros in possible pension if the performance is good. So it takes 27 or 18 years until he gets paid back the 50,000 euros he invested – by then he would be 94 or 85 years old. Immediate pensions are therefore more worthwhile if the insured become very old.
Seniors should always take a close look at the conditions of their pension. The acquired pension entitlements are often not inheritable. If they die earlier, the money is gone. Unscheduled debits or early termination of the contract in order to get part of the money are usually only possible at the expense of financial losses.
Alternatively, retirees can invest their money themselves in the capital market. Then, for example, a stock withdrawal plan is suitable for monthly pension payments. This is basically the opposite of a savings plan: the broker automatically sells some of the shares on a deadline and transfers the amount to the account.
The return is usually higher than with an immediate annuity through an insurer. If you withdraw the same amount annually as with the possible immediate pension (2,734 euros), a one-off investment of 50,000 euros is enough with a return of five percent per year for 34 years. Since its inception in 1987, the MSCI World has achieved an average annual return of 8.29 percent – this would mean that the return (plus 3,781 euros) would exceed the withdrawal in the first year. Online withdrawal calculators help to calculate potential withdrawal rates or the duration of a capital annuity.
Investing the money yourself has the advantage of being able to use it flexibly at any time. If retirees suddenly need money because of an accident, they can sell some of their stocks at short notice. In the event of an early death, the remaining assets can be passed on to the surviving dependents. However, there are no additional pensions on the capital market if pensioners live longer than expected.
In addition, the capital market does not come without risk: if things go badly on the stock market and savers have to get their money, they realize the loss. One way to reduce risk is to combine a withdrawal plan and fixed-term deposit accounts. Fixed-term deposits pay a secure interest rate over a predetermined period of time. A combination with an immediate pension can also make sense in order to secure at least a slightly higher pension in the long term.
If you have a higher one-off amount available, you may be thinking about buying a property. However, this usually only makes sense if the property is fully paid off by the time you retire. Otherwise, the ongoing repayment will eat up either rental income or saved rental expenses if seniors live in their property themselves.
However, paid-off, self-used and, at best, age-appropriate living space can be a great financial relief in retirement. Retirees do not have to spend money on rent and therefore do not have to worry about rent increases. Renting out property can also make sense, but seniors must pay tax on this income and create reserves for maintenance. This can reduce returns.
