Stagnating salaries, high inflation rates, low interest rates. More and more Germans are afraid of poverty in old age. The message from politicians that in our aging society the state pension is no longer sufficient to ensure a pleasant old age has reached the people. However, many do not know how to close the gap between the pension and the actual financial needs. Unfortunately, the topic is complicated and full of pitfalls. Call money or time deposit accounts, ETF savings plans, Riester or Rürup pensions, actively managed equity funds, real estate or endowment insurance? What do I have to invest, what brings me the greatest return? What do I have to pay taxes on later, what health insurance? Unfortunately, there are no simple answers to this. And they always have something to do with age.
The most important tip: Don't go into debt! Because nothing makes wealth accumulation more difficult than earning expensive overdraft interest on the current account or a consumer loan for the big TV, the car or a dream vacation. Instead, save an emergency fund on the overnight money account, which can be used to pay for the repair of the washing machine or the deposit for the new apartment. That can be difficult, after all, with the low starting salaries, a large part goes into rent and living expenses. But a little stinginess pays off in the medium term. The functions of most banking apps now support you with an overview of income and expenses.
Which investments make sense at this age? Since a lot can still happen in life, especially those that are flexible and only associated with low costs through acquisition commissions. This includes:
Play it safe, the savings plans
I pay a sum of, say, 100 euros to a bank savings plan every month for eight years. In the end, 9,600 euros were paid into the contract and, depending on the current offers, 500 to 1,000 euros in interest accrued. No wealth yet, but a foundation. Advantage of the bank savings plan: The interest is guaranteed. The longer you commit yourself, the higher the return is usually. But can the savings plan be terminated if the money is needed beforehand or the installments cannot be serviced due to unemployment? That depends on the contract. For variable rate plans, usually yes, for others only if you waive the interest. Some providers even charge a penalty fee, so you get back less money than you paid in. An important criterion when choosing the right tariff at a young age: flexibility.
Fund savings and ETF offer more flexibility and returns
Investing in funds is suitable for every age group who want to invest their money with a good chance of a return. The principle is the same as with the savings plan: you pay a fixed sum every month – ten euros are enough for some providers – into the contract. Unlike the conservative bank savings plan, the bank or broker invests the money in stocks and buys shares in stock funds. Advantage: You can adjust or suspend the installments at any time or end the fund savings altogether and have your shares paid out.
"Exchange Traded Funds" - ETF are particularly suitable. An ETF simply replicates the price development of a stock market index. He is not actively looked after by a person, which reduces the costs enormously. While managed funds take around 1.6 percent of the capital annually as fees, it is only around 0.5 percent for an ETF. There are hundreds of different ETFs. ESG ETFs that only invest in green companies, ETFs for tech stocks or medicine. There is even one who only bets on “dirty” deals: guns, oil, gas, tobacco, adult entertainment. You are on the safe side with a broadly diversified ETF such as the MSCI World, MSCI Europe or Stoxx 600 Europe. These major indices include over 1000 stocks. A widespread risk.
The downside: if the stock market and the indices collapse, the value of these shares also falls. Since funds always fluctuate, fund saving is only recommended as a long-term investment. At least ten, preferably 20 or 30 years. This is the only way that fluctuations on the stock market can be balanced out over the years, and the return can increase to six or more percent per year. An example: Anyone who saves 200 euros a month in an ETF for 30 years can call their own capital of around 173.00 euros at the end of the term and a conservatively set six percent return.
Exactly how much is left also depends on the costs charged by the bank or the service provider. Because buying funds or ETFs costs fees. The investor must pay the front-end load, administration and performance fees. However, there are big differences here - and they have a direct impact on returns. Because every euro that investors pay for fees and the like reduces the yield. The front-end load is a one-off fee when buying a fund, which represents the difference between the higher issue price and the lower redemption price and is usually stated as a percentage. That can cost up to six percent. Investors should therefore check exactly how high the front-end load is, because this fee can be saved with some online brokers.
Involving the employer in the pension scheme: The company pension scheme.
Here, a fixed amount is paid into the contract from the gross salary, a maximum of four percent of the contribution assessment limit and a maximum of 3120 euros per year. Taxes and social security contributions are not due on this sum, which also pleases the employer. Of course, there is also an important disadvantage. Taxes and social security contributions are subsequently due when you retire. That's why the model is particularly worthwhile if the boss adds something to his employee's contributions: at least the saved social security contributions, but possibly more if he is socially oriented or really wants to keep the employee. There are definitely opportunities here for the next salary negotiation. What if you change jobs? Then you can simply take the contract with you with many tariffs. The fact that this is actually possible is an important selection criterion, especially for young employees.
As soon as there is a joint household, especially with children, the first thing to do is to cover the greatest risks. That is why term life insurance is essential. This relatively inexpensive insurance occurs in the event of the death of one of the partners and should cover at least five of their annual incomes. On the other hand, endowment life insurance does not make sense. This once classic old-age provision suffers too much from the current low interest rates. Since the insurance companies book high costs on the contracts, they are simply no longer worthwhile. If you still have an old endowment life insurance, you should not necessarily cancel it. Early termination often means financial losses, since the surrender value is usually lower and the final bonus does not apply.
The Riester pension insurance
The old-age provision, named after the former SPD Labor Minister, is not worth it for everyone, but young families in particular can benefit. Because in addition to the 175 euros that the state grants annually as a subsidy, there is an additional 185 euros per child (born before 2008) or 300 euros (born after 2008). In order to get these allowances, you have to pay at least four percent of the insurable income in the previous year into the contract - with an income of 30,000 euros, 1200 euros. Alternatively, you can claim your contributions in your tax return, in which case the pension payments will later have to be fully taxed. This can be worthwhile for high earners near the top tax rate because they can lower their income, which reduces the tax rate and the amount of tax on the remaining income.
A number of other rules apply to the Riester pension, for example:
An important criterion for choosing the right tariff: the lowest possible costs for the provider. They eat up the return on the money saved, especially in the first few years. Since laypeople usually do not see through these cost traps, it is definitely worth getting advice from a consumer advice center.
The fund savings described above are also available with Riester funding. The grants are the same, but there is no flexibility. Experts also criticize the high costs and fees here.
An investment popular with Germans that is now coming into focus: the home savings contract.
The problem of high costs at the beginning of the term also affects him. One percent of the home savings amount is the final commission, so the accumulation of assets for your own four walls starts in the red. However, if you have a firm intention of building or buying a property in seven or eight years, you can already secure a low interest rate for your financing today. But be careful: there is hardly a financial product that is as complex as the home savings contract. This is due to the multitude of factors that can vary:
All of this can be customized - but laypeople shouldn't leave that to an intermediary, but should rather discuss it with a consumer advocate. According to the experience of Stiftung Warentest, intermediaries are primarily interested in high home savings sums because they secure high commissions for them.
You can also save on building loans with a Riester subsidy. Then, in addition to your own contributions, the state allowances flow into the contract, which serves as part of the real estate financing.
Good, but expensive: The owner-occupied property
Having your own four walls is one of the most important building blocks for Germans' old-age provision. And it is preferably bought at the nest-building stage. Three developments counteract the boom today. The days of zero interest on construction loans are over, real estate prices are overheated and not every property is increasing in value rapidly. In contrast to previous decades, where practically every apartment, every house experienced an sometimes enormous annual increase in value, today you have to take a much closer look. Prices are stagnating again in rural areas and even on the outskirts of town. The value is determined less by the equipment or the year of construction and more by the place and location. Three trends are important:
If you have done everything right, the financial situation at the beginning of retirement usually looks better than that of tenants, experts know. Real estate financing is a kind of forced saving and the proceeds from a paid-off property are usually a handsome sum that is not so easy to generate in any other way. Anyone who buys a finished property should take into account the additional costs such as real estate transfer taxes and notary costs. Depending on the federal state, the ancillary costs can account for up to twelve percent of the purchase price.
Has the property already been paid for? If not, available assets should go toward paying off mortgages, because nothing pays better than avoiding interest on debt. Is a property worth renting out? That depends on the property - on the location, price, condition, achievable rent and the local housing market. All of this needs to be checked carefully. But the effort that each apartment means for the landlord is also important. Utility bills have to be drawn up, repairs have to be done, tenant changes have to be managed. Anyone who does not want to commission an administration (which costs about five percent of the income) may spend many hours on it. And there is no guarantee that even the most attractive apartment will not be vacant for a few months, and that major repairs will eat up the earnings for several years.
The basic pension for the self-employed
Also known as the Rürup pension, named after an adviser to a government commission. This is primarily intended to protect the self-employed in old age. There are no state grants, but there are subsidies through deductions from income tax. With the Rürup pension, capital is built up during the savings phase, from which the lifelong pension is later financed.
However, the tax advantages only come into play if a large sum is continuously paid in, i.e. on average over 22,000 euros per year. The less you pay in, the lower the tax relief, but from 2040 the entire monthly Rürup pension will have to be taxed. The model is therefore not worthwhile for fresh start-up founders. An ETF savings plan would be a better choice here. This also applies to high-income employees.
Because Rürup has another disadvantage, it is inflexible. The contract cannot be terminated and cannot be inherited or transferred. And after the start of the pension, there is no capital payment, only a monthly life annuity, albeit until the end of life. In view of increasing life expectancies, this causes insurance companies to only guarantee small amounts - and that significantly reduces the return on the money paid in.
The good old statutory pension insurance is better off. Stiftung Warentest compared their returns with the Rürup pension and private pension insurance - and the statutory pension came out on top. The reasons for this were the high tax advantages during the payment phase and the protection for surviving dependents. The self-employed can voluntarily pay into the statutory pension insurance, currently at least 85 euros and a maximum of 1150 euros per month. And even those who retire before the statutory retirement age can close the resulting gap in payments by purchasing pension points. That only pays off with the prospect of a (hopefully) long life. Although the return on the money paid in is around three percent, if you die prematurely, it is lost for the bereaved.
Now it's no longer about saving money, but investing the savings in such a way that it enables the accustomed standard to be maintained until the end of life. Often the house in which the family once lived is now too big and the garden maintenance too time-consuming. But simply put the proceeds of the sale, possibly several hundred thousand euros, in a savings account? Certainly not, because with the current interest rates on savings, that meant a gradual loss of value due to inflation. But how to invest?
Part of the money goes to:
Daily deposit account and fixed deposit account
Some of the money is well invested in money market accounts. Although they only grant a lower interest rate of 1.5 to 2 percent, the capital can be accessed at any time. Ideal if unexpectedly larger sums have to be paid. Fixed-term deposit accounts with a term of two to four years are a useful addition. The interest rate is currently (beginning of 2023) at a good three percent and yet the investment horizon is manageable.
Into a bank payout plan
The capital becomes a kind of second pension: a certain sum is paid out every month over a fixed term of five or ten years, for which a fixed interest rate has been agreed. At the moment, there is no need to be under any illusions about the level of interest rates: the best providers have little more than two percent. As a rule, the assets will be at least partially used up over the term.
The instant annuity
For example, you pay 100,000 euros into a pension insurance scheme and receive a monthly pension until the end of your life, which is between 290 and 350 euros with current providers. One can guess why consumer advocates call this form a "bet on a long life": If interest were paid on this sum and 300 euros of it were spent every month, a 65-year-old could live to be older than 90 before his capital was exhausted. Only then is the investment worthwhile. Even better: you halve the 100,000. The first 50,000 are enough for ten years with a cash withdrawal of 300 euros per month. A time when you invest the second half in a fixed-term deposit account at currently three percent and more and take over 10,000 euros in interest. Advantage of the immediate pension: In contrast to the statutory pension, it can be inherited.
Defensively good: mutual funds
Yes, these are stocks whose value fluctuates, but even conservative experts recommend that even retired people have about 30 percent of their wealth in stocks. ETFs are a good choice. Important: avoid high-risk investments, but rely on funds that spread their shares widely. This reduces the risk and still allows attractive returns.
The number of financial products intended to help build wealth is large and unmanageable for laypersons. That's why it doesn't work without advice. Caution should be exercised with banks, insurance companies and their intermediaries: they are naturally interested in selling their own products. You should question whether they actually represent the optimal solution for your personal situation. Comparative calculators on the Internet are well suited for a first check, for example on the homepage of the financial advisor Max Herbst (fmh.de) or on the consumer portal finanztip.de.
A great place to go for all questions about ETFs is the website finanzfluss.de. In online seminars and podcasts, Thomas Kehl shows how investing works for beginners.
The tests from Stiftung Warentest are also very useful. If there are already concrete offers on the table, it is worth seeking advice from a consumer advice centre. It costs up to 170 euros for 90 minutes - but that's really money well invested.