German Public Pension: What You Will Get When Retiring In Germany
If you work in Germany, you are paying 18,6% of your salary into the German public pension system – but what do you get out of this when you retire? 🤔 Let’s find out together in this article!
Key Takeaways
- The public pension is a generational contract in which you save for the current pensioners while the next generation will pay for you.
- With the average German income, you receive one pension point. For each point, you receive a certain monthly pension amount.
- Depending on your years of work and salary, your future pension will look different, as you can accumulate more or fewer points.
- If you invested the same amount you pay into the public pension in a private pension, you would receive three times as much.
Introduction: The German Public Pension Cannot Secure Your Retirement
The primary purpose of the public pension system is to ensure that everybody can maintain a comfortable standard of living during their retirement years. Nevertheless, in 2022, the government released a report that explained that “the public pension payout will decline slowly but steadily” (Download file from Deutsche Rentenversicherung). The report stated that these payments would not be adequate to meet your financial needs and secure your livelihood during retirement.
Given this sobering news, it is imperative that you begin exploring alternative investment options to supplement your public pension benefits. Before we delve into these investment strategies, however, it is crucial that you have a clear understanding of the amount you can expect to receive from your public pension when you retire.
By having this information, you will be able to make informed decisions about your investment portfolio and create a plan that can help you achieve a financially stable and comfortable retirement.
How Much Will You Get In Retirement? The Public Pension Formula
To calculate your retirement income, we require four critical pieces of information. These factors play a crucial role in determining how much money you will receive during your golden years, and as such, they must be taken into consideration when planning for your retirement:
- Pension points: Every year you work in Germany and pay into the public pension system, you’ll get a pension point. In 2023, you’ll get one point for these gross salaries (If you earn double this, you can get up to two pension points (maximum)):
- East Germany: 41.967€
- West Germany: 43.142€
- Retirement age: In Germany, the retirement age is 67. Every month you retire before 67, you’ll get a penalty of -0.3% for the rest of your life. For every month you retire after 67, you’ll get a bonus of +0.5% for the rest of your life.
- Point value: How much is a pension point worth in 2023?
- East Germany: 35,52€ per month
- West Germany: 36,02€ per month
- Additional factors: For the purpose of this blog post, let’s assume you are retiring due to age, and not a disability.
Your Public Pension With x€ Salary
If you work in Germany for 20 years, with a gross salary of 2.000€ per month, you will accumulate 11.1 pension points. Because your income is only 56% of the average of everyone paying into the system, you’ll only get 0.56 points every year – or 11 points every 20 years.
This year, the value for one point equals 35,52€ or 36,02€, meaning that the gross monthly pension would equal 401€ if you worked for 20 years. Generally speaking, you’ll have to pay taxes and health insurance on the public pension. However, with only 401€, you would fall into social security, so you wouldn’t have to pay any taxes, only 45€ for public health insurance. This makes the net pension 355€.
When working for more years, you’ll get more pension points, and therefore, a higher pension.
Because the average salary you would need to get one pension point changes yearly, the tables below are only estimates!
Your Public Pension With 2.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
2.000€ | 20 | 11.1 | 401€ | 355€ |
2.000€ | 30 | 16.7 | 601€ | 532€ |
2.000€ | 40 | 22.3 | 802€ | 711€ |
Your Public Pension With 3.000€ Salary
With a 3.000€ monthly salary, you will start paying taxes and health insurance on your gross pension, which is why the gap between the gross and net pension starts to widen.
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
3.000€ | 20 | 16.7 | 601€ | 532€ |
3.000€ | 30 | 25 | 902€ | 789€ |
3.000€ | 40 | 33.4 | 1.202€ | 1.005€ |
Your Public Pension With 4.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
4.000€ | 20 | 22.3 | 802€ | 711€ |
4.000€ | 30 | 33.4 | 1.202€ | 1.005€ |
4.000€ | 40 | 44.5 | 1.603€ | 1.266€ |
Your Public Pension With 5.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
5.000€ | 20 | 27.8 | 1.002€ | 863€ |
5.000€ | 30 | 41.7 | 1.503€ | 1.202€ |
5.000€ | 40 | 55.6 | 2.004€ | 1.523€ |
Your Public Pension With 6.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
6.000€ | 20 | 33.4 | 1.202€ | 1.005€ |
6.000€ | 30 | 50.1 | 1.803€ | 1.395€ |
6.000€ | 40 | 66.8 | 2.405€ | 1.772€ |
Your Public Pension With 7.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
7.000€ | 20 | 38.9 | 1.403€ | 1.137€ |
7.000€ | 30 | 58.4 | 2.104€ | 1.585€ |
7.000€ | 40 | 77.9 | 2.805€ | 2.013€ |
Your Public Pension With 8.000€ Salary
| Monthly Salary | Years Working | Pension Points | Gross Pension | Net Pension |
|---|---|---|---|---|
8.000€ | 20 | 40 | 1.441€ | 1.161€ |
8.000€ | 30 | 60 | 2.161€ | 1.621€ |
8.000€ | 80 | 77.9 | 2.882€ | 2.058€ |
German Private Pension Vs. German Public Pension
On average, as an employee, you contribute 334€ per month towards your public pension plan, while your employer matches your contribution with an additional 334€ per month. This means that your total monthly contribution towards your public pension amounts to 668€. Now, let’s say you decide to invest some money into a private pension plan for 40 years. If you contribute around 650€ per month to this plan, you could earn a total of 1.440,80€ by investing in a public pension.
However, if you choose to invest the same amount into a private pension plan, you could earn a whopping 4.432,40€ per month (see on the right), which translates to a massive 1.2€ million in savings over 40 years! Can you believe it? With just an average salary, you could become a millionaire by choosing to invest in a private pension plan.
Think about it; while public pension plans offer some security, investing in a private pension plan could yield substantial returns in the long run. So why not start planning for your future today and invest additionally in a private pension plan to secure a comfortable retirement?
How Can You Increase Your Future Pension?
Undoubtedly, the government’s statement about the need for additional savings for retirement is completely true. It is imperative to consider various options such as investing in pensions, stocks, real estate, real estate security tokens, or opening a high-interest savings account to ensure a comfortable retirement life.
To ensure you make the best decision for your retirement savings, we invite you to schedule a free consultation with us. Our team of financial experts will help you to analyze your individual financial situation and suggest the most suitable retirement plan tailored to your needs and preferences, regardless of your retirement plans in Germany or any other country.
Retirement is a milestone that requires careful planning and preparation. That is why we believe that everyone deserves a happy and fulfilling retirement. Let us help you take the first step towards achieving your retirement goals. Make an appointment with us today and secure your financial future!
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