Retirement provision: 2 mistakes, 4 tips


Why you should start thinking about tomorrow today and how you can make the best possible provision for your old age. I reveal my four tips for retirement planning. What mistakes are often made when planning for retirement? The article also provides answers to this question.

A widespread misconception in our society is that many people believe there is still plenty of time for retirement planning. Why you should set the right course for your future today.

You can't start early enough with retirement planning ;)
You can't start early enough with retirement provision 😉

Declining pension levels in Germany

Unfortunately, the situation of many people of current or future retirement age is often not so rosy. The cause of the problem often lies years or decades ago: Appropriate financial planning for old age never took place. The money earned over many years was simply spent. Since the level of state pensions has fallen continuously over the last few years (see chart), the topic of old-age provision remains explosive.

Chart: Pension level in Germany expressed as the ratio of standard pension to average earnings. Visualization: | Data source: German pension insurance

Decisive elements for the gloomy outlook for the upcoming retirement period are the declining statutory pension level and the fact that many people do not compensate for these disproportions by making their own provisions. According to a study conducted by Deloitte in 2017, 20 % of Germans do not specifically take care of their own private provision, while a further 39 % only make provision with a checking, call money or fixed-term deposit account. This is far from sufficient due to the low interest rates there. Finally, the Interest rate effect a key pillar in capital accumulation. It is therefore not surprising that, according to the study, around 61 % of the German population feel threatened by poverty in old age.

Retirement provision: planning is everything

Nevertheless, assuming the right planning, the classic romantic ideas of pensioners driving a cabriolet at sunset are also possible with an average German salary.

But why is planning for retirement such a difficult topic for many that it goes unaddressed for years? It can hardly be due to a lack of information. The pension insurance company informs employees annually about the benefits to which they will be entitled later. Is our future self simply not important enough to us?

In my opinion, one of the biggest hurdles we have to overcome with regard to old-age provision is correctly estimating the time distance to retirement age. As a rule, many years or even decades still have to be bridged before retirement. Retirement thus becomes an abstract event that we cannot properly grasp and comprehend with our minds. We tend to put our current needs before future needs. Evolutionarily, this makes sense. For millions of years our genetic code was programmed to first try to escape acute dangers and to satisfy the acute needs (hunger, thirst, roof over our heads) of our ancestors. Survival would not have been possible otherwise

Another challenge when it comes to retirement planning is the large number and complexity of retirement products. This complexity causes a kind of anxiety among many people. As a result, people get caught up in "Rigor mortis"With the result that they no longer concern themselves at all with the subject of old-age provision. However, they do not realize that this automatically puts them on the losing side. Because every year of inactivity is a year of lost compound interest.

Recent reforms have made it easier to provide for oneself financially in Germany. These include, for example, the introduction of Riester and Rürup pensions as well as company pension schemes, which the state supports through tax relief. A simple way to top up the statutory pension is to talk to your employer about an additional company pension plan. There are various forms of company pension schemes: many things are often possible, from a direct commitment with a one-off payment to a pension payment spread over several years. Please inquire with your employer.

Pension plans: Grow large assets with small balances

Retirement plans such as company pension schemes are often a good way to get to the topic of retirement provision. Because: Once set up, the plans continue to run every month. In principle, ETF savings plans work in a similar way in broadly diversified index funds such as the MSCI World. Once you have chosen a suitable depot and the corresponding ETFs, the monthly capital build-up takes care of itself. Another alternative for TechGeeks ask Robo Advisor Here, too, there are robo advisors who have specialized in old-age provision. The most important factor with all options is not so much the final product you choose, but the regularity with which you save over many years. The compound interest effect can create large assets even from small deposits.

>>Compare the best and cheapest depots here<<

Planning your retirement has a huge impact on your financial future. Since the challenges to be overcome are great, anything that brings clarity and simplicity to the subject of retirement provision is of great benefit. So take the time so that the big vision of a relaxed life in old age, including lively convertible drives across Tenerife, becomes more likely.

Red convertible
Assuming the right planning, driving a convertible in retirement is not a financial problem. | Image source: Users: Designer Kottayam

Tips for pension planning and retirement provision

  • If you have paid pension contributions into the fund for more than 45 years, you can retire at 63.
    In Germany, since July 2014, there has been a deduction-free pension for people who have paid into the pension system for at least 45 years.source) to be accepted when it comes to retirement.
  • Receive foreign pension contributions in Germany
    German citizens who have temporarily worked abroad and are retiring in Germany can have their pension entitlements transferred to their German account. This also works the other way around: the German pension fund can transfer claims to the country of your new place of residence.
  • Create a retirement plan
    Most of the financial questions concerning the security in old age will be answered by a solid financial plan. This takes into account your monthly income and expenses including, for example, necessary insurance or planned investments and other elements. A professional financial planner can identify gaps in your plan and steer you in the right direction financially without wasting too much time. Alternatively, you can use an Excel sheet to get started on your own. Many banks, such as comdirect, make life easier here, as all income and expenses can be assigned to categories. By exporting the data to Excel, you can easily make further calculations and add payment flows that have not been recorded.
  • Talk to your partner about retirement
    In many partnerships, money and finances are still a taboo subject that is talked about too little. A common mistake is therefore not to discuss the topic of retirement planning with the "better half". A common mistake couples make is to correctly assess the impact of retirement on their daily lives. Talking about this on a regular basis provides clarity and helps to discover problems early on and develop a common picture. For example, these "money talks" can be used to make decisions: Who will inherit the family assets or how high future expenses may be each month to stay within the retirement budget.

Common retirement planning mistakes. How you shouldn't handle retirement planning

  • Don't be unrealistic about your projected needs
    A rule of thumb is that by the time you retire, you should have around 80 % of your previously disposable income. Do you have better data because you know your expenses better by keeping a household book? Better yet, fall back on it. Don't forget a safety buffer though.
  • Don't start saving for retirement too late
    A common misconception is that there is plenty of time to save for retirement. The right time to start saving was yesterday, the second best is after you finish reading this article. The compound interest effect needs many years to work properly. Furthermore, by starting early, you still have some time to experiment with different approaches and find the right way for you.

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