Retirement planning - should you be concerned?

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The media often addresses the subject of retirement. Very often, articles include an appeal to each one of us to deal with our own pension as early as possible. To do that, you need to be familiar with the key concepts. In this article, we also provide you with insights into closing a potential pension gap.


Your future pension is based on two elements: your salary and the length of time you work and thus contribute to the public pension scheme. For example, if you earn about € 38,000 a year, this will give you 1 point in the pension insurance. If you earn a higher higher salary, you get more points, and if you earn less, you get less points. If your annual salary amounts to € 45,000, you have 1.19 points, as € 45,000 is 19% more than € 38,000. If you have children, work part-time and don’t earn 100% of your previous salary, you will be awarded 1 point per child for your retirement account for max. 3 years per child.

At the end of your working life, the account balance is evaluated: the sum of the pension income points is added up and multiplied by the pension cash value. For example, if you have 45 points today, you would receive about € 1,396 (applies to West Germany, slightly less in East Germany). That would be the case if you earned a median income for 45 years.

However, this pension rate does not match reality: a woman currently receives 606 € (West) and a man 1,078 € (West) per month.

This does not indicate much about the future, but it's definitely not a rosy forecast. Women receive less pension because they earn less than the average (due to career choices, for example) and because they work more part-time and often take on mini-jobs. Given career breaks, they also have less career opportunities.


The pension gap represents the difference between the pension I receive and my living expenses at retirement age. The challenge: at the moment I do not know exactly how much pension I will get, nor what cost of living I will have later.

How CAn YOU calculate YOUR pension gap?

There are some online calculators, such as the calculator from the German Institute for old-age provision ( Here you can enter your data (age, net income, inflation, pension points). The calculator calculates the pension gap (= pension gap). In a second step, you can calculate your monthly savings based on different return expectations. The calculator shows you two different scenarios: the required return, if you can set a monthly fixed savings amount aside or based on a return, how much you would have to save monthly.

Practical tip: Certain questions can also be the German public pension insurance ( directly on 0800 1000 4800.

HOW can you bridge your pension gap?

Many roads lead to Rome. If you are a mother and permanent employee, a Riester pension can be worthwhile, depending on which contract you choose. You should also consider company pension plans, as up to an amount of € 6,240 per year as these deposits are tax-free and social-tax-free until you hit this threshold. Also, as of 2019, your employer has to contribute 15% to the scheme. Our recommendation: ask your employer what he offers. If you are self-employed and do not contribute to the public pension, the Rürup pension plan might be suitable for you. A real estate purchase can make sense because of tax benefits, since you save monthly rent payments and it represents a capital investment income in old age.

PRIVATE pension PROVISION - Now and then

Private pension provision is another way to ensure you have enough money later on. In the past, private pension insurances were a popular tool. However, these only offer a low guaranteed pension in the present (about 0.9%). They often come with very high costs, since the contributions are invested in actively managed funds and the administrative costs for this "swallow" the return. A good alternative: if you have 10, 15, 20, and more years before retirement, invest in ETFs. In the past, this yielded around 6% return per annum if the money was invested in a large listed equity index fund for at least 10 years (e.g., MSCI World). Read up about ETFs before you select ETFs and put together a diversified portfolio (see below recommendations from Stiftung Warentest). Good to know: each year, there is a tax break for capital income of € 801 per person. Let your bank so that they can set up the exemption order. Another advantage of ETFs: Unlike private pension insurance, your money is relatively liquid, and you have access to it. For a private pension insurance, there is a fixed contract period. If you cancel the contract before the end date, you will very likely lose money. Alternatively, you can put the contract on hold. In this case, you have to wait until the expiration date - but at least do not continue to deposit money into it. Again, it is possible that you lose money.

Stiftung Warentest, a German foundation, mentions two portfolios for passive investors: the Pantoffel and the Tiger portfolio.

My personnel approach and summary

I use the tax benefits or allowances available to me and also invest in ETFs. Why? I chose ETFs because I have more freedom (I do not have an insurance policy that has fixed terms and conditions). Also, when investing in ETFs as a passive investor, I do not need to keep up with market developments and still have a diversified portfolio. Realistically, if you don’t want to be poor later, you will have to take care of other pension options in addition to the statutory pension. Do not worry: just start taking care of it. If you require more information, contact the consumer center ( This usually costs less than a consultant and you can be sure that the advice is less biased.

Written by Clara Creitz
Finelles Founder. Coach and Consultant (UBS, Towers Watson). 



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