Tips for your pension

Why you should think about tomorrow today and how you can protect yourself in the best possible way when it comes to retirement provision. I'll share my four tips for retirement. What mistakes are commonly made when planning retirement? The article also provides answers to this.

A common misconception in our society is that many people believe that there is still a long way to go to save for old age. Why you should set the right course for your future today.

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: Konto-Kredit-Vergleich.de | Data source: German pension insurance

Decisive elements for the gloomy outlook for the approaching retirement age are the declining statutory pension level and the fact that many people are not making up for this disparity with their own provision. According to Study by Deloitte from 2017, 20 % of the Germans do not specifically care about their own private provision, another 39 % only provide with a current, daily or fixed-term deposit account. Due to the low interest rates there, this is far from sufficient. Finally, compound interest is a key pillar in building capital. It is therefore not surprising that, according to the study mentioned, around 61 % of the German population feel threatened by poverty in old age.

Tips for retirement: Well planned is half done

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 retirement planning such a difficult topic for many that has not been tackled for years? It can hardly be due to a lack of information. The pension insurance informs employees annually about the payments they are later entitled to. Is our future self just not important enough to us?

In my opinion, one of the biggest hurdles we have to overcome when it comes to saving for retirement is correctly assessing the distance in time to retirement age. As a rule, many years or even decades have to be bridged before retirement.

Retirement becomes an abstract event that we cannot grasp and understand properly with our minds. We tend to put our current needs ahead of future needs. Evolutionary biology, this makes sense. For millions of years, our genetic code was programmed in such a way that it first tried to escape acute dangers and to satisfy the acute needs (hunger, thirst, roof over our heads) of our ancestors. Otherwise, survival would not have been possible.

Retirement tips: Don't go into shock

Another challenge when it comes to old-age provision is the large number and complexity of old-age provision products. This complexity creates a kind of anxiety in many. As a result, people go into "shock rigidity" with the result that they no longer deal with the topic of old-age provision at all. 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.

Retirement tips: Use pension plans

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.

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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.

Tips for retirement: #Do

• 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 financial questions about security in old age are 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 the plan and steer you in the right direction financially without wasting much time. Alternatively, you can of course get to work yourself with an Excel sheet. Many banks, such as the N26*, make life easier here, as all inputs and outputs can be assigned to categories. By exporting the data to Excel, further calculations can easily be made and payment flows that have not been recorded can be supplemented.
• Talk to your partner about retirement
  In many partnerships, money and finances are still a taboo subject that is not talked about enough. A common mistake is therefore not to discuss the topic of old-age provision with the "better half". A common omission that couples make is properly assessing the impact of retirement on your everyday life. A regular discussion about this creates clarity and helps to discover problems at an early stage and to develop a common picture. For example, these "money talks" can be used to make decisions: who inherits the family fortune or how high future monthly expenses can be in order to stay within the pension budget.

Retirement tips: #Don't Do

• 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 still a lot of time left for retirement planning. The right time to start saving was yesterday, the second best is after you finish reading this article. Of the compound interest effect takes many years to work properly. Furthermore, the early start gives you some time to experiment with different approaches and to find the right path for you.

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Helpful Links - Further information

>> May it be a few more interest? << To the overnight money comparison
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>> Active or passive managed funds << My opinion

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