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More Germans than ever take early retirement

More Germans than ever before are taking early retirement, according to new figures released on Thursday. A record number put their feet up early in 2011, opting to take a reduced pension in order to enjoy more free-time.

More Germans than ever take early retirement
Photo: DPA

Some 337,000 people, or 48 percent of all Germans who retired in 2011, did so before reaching 65 – the highest number ever, according to figures released on Thursday by the Rentenversicherung Bund (DRV), which operates Germany’s state pension system.

Health-workers, teachers and truck drivers were among those most likely not to work up to the retirement age of 65, said the DRV. More of those stopping work early were women, the figures suggested, with the share of female early retirees up from 36.1 percent to 51.7 percent in 2011.

Whether the trend is a result of workers opting for a reduced income in return for more leisure time in their 60s is hard to determine, as no definite statistics exist on why people stopped work early. Some workers could have been forced out or encouraged to take early retirement when firms cut jobs.

However, the statistics did show that many workers taking retirement early had been ill or unemployed previously, whereas others had worked up enough money to afford the drop in income.

In general, those retiring early had earned above average salaries while working, while many others had inherited substantial sums.

But it could mean few people receive their full pension in the future, as Germany is in the process of slowly hiking its retirement age to 67.

DAPD/The Local/jlb

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PENSIONS

EXPLAINED: Is it worthwhile to set up a private pension plan in Germany?

If you’re employed in Germany, you’re almost certainly contributing to your state pension. But it might not be enough to live on in your old age, meaning people often have to put other plans in place to retire comfortably. Here’s why some pick private pensions on top of their public ones.

EXPLAINED: Is it worthwhile to set up a private pension plan in Germany?

Experts reckon that very few people who work in Germany end up drawing a net pension that will even give them the current average monthly wage – which sits at a little over €2,500 after tax. Those that do will have likely contributed the maximum amount for several years.

“For a typical foreigner, that public pension is nowhere near enough,” Chris Mulder, Co-Founder of Pensionfriend – a private pension provider catering to Germany’s expatriate community – told The Local.

Mulder says this is especially true for foreigners because most Germans who live and work their whole lives in Germany simply won’t have enough to retire on with state pension alone. Foreigners, he says, have to be even more mindful because of the “patchwork quilt” of pension entitlements they might end of collecting from around the world, which don’t necessarily all combine well to provide livable incomes later in life.

But while it might be clear to people that they’ll need more than their German state pension in retirement, why might someone want to invest in a private pension plan in Germany rather than simply investing their own money themselves – perhaps in stocks and ETFs through a depot?

Private pension funds can typically professionally invest your money for you. Photo: Unsplah / Jenny Ueberberg

Yet Mulder points out that investing by yourself through a depot will typically see you pay withholding taxes every year – and capital gains tax every time you sell.

By contrast, if you invest through a private pension plan, you’ll pay only when you take your money out – either all at once or over time – typically later in life when you hit retirement age and have less income.

In addition, if you hold the private pension plan for at least twelve years and you wait to take out your money until after you turn 62 – you’ll only be taxed on half of your capital gain. Tax benefits also increase the longer you wait to take it out.

READ ALSO: How does Germany’s retirement age compare to the rest of Europe?

What about plan costs?

Mulder says that even with the tax advantages a private pension plan comes with, some providers may charge too much in fees to make it worth it.

A good rule of thumb is to see if a potential provider’s fees are less than the withholding tax you would pay if you simply invested the money yourself.

“We work to set ours up in a way that your tax advantage outweighs our cost,” said Mulder of his own company’s offering.

READ ALSO: How long do you have to work in Germany to receive a German pension?

Can you take your pension with you out of Germany?

For state pensions, this obviously depends on where you go. You can take German state pension payments anywhere in the European Union or associated countries – meaning that retiring to the warmer climes of Spain or Italy won’t affect you pension rights. Leaving the EU might come with some limits, depending on where you go to.

Private pensions though, are much more flexible – and you can typically draw them wherever you end up relocating.

READ ALSO: EXPLAINED: Do your pension contributions abroad count in Germany?

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