German Public Pension: What You Will Get When Retiring In Germany | PerFinEx Pension

Summary

This video critically examines the German public pension system, explaining how workers contribute 18.6% of their salaries to it, yet face a future of declining payouts. The presenter outlines how the pension calculation works, detailing pension points, retirement age, and pension point value. Despite these contributions, retirees often receive far less than expected, leading to the advice of additional savings through stocks, real estate, or other pensions. The video emphasizes the need for personal investment strategies to secure a comfortable retirement, offering a more lucrative alternative through private pension schemes.

Takeaways

• 😀 The German public pension system requires workers to contribute 18.6% of their gross salary to secure their future retirement benefits.
• 😀 The public pension payout is projected to decline over time, and it may not be enough to fully support retirees, as indicated by a 2022 report.
• 😀 The German government encourages individuals to pursue additional savings, such as private pensions, real estate investments, or stock market investments, to ensure financial security in retirement.
• 😀 To calculate your expected public pension, four factors are required: pension points, retirement age, the current value of a pension point, and the retirement scenario.
• 😀 Pension points are earned based on your annual salary relative to the national average, with one pension point given for an average salary. Higher or lower salaries adjust the points accordingly.
• 😀 The retirement age in Germany is 67, but retiring earlier than that results in a penalty (minus 0.3% per month), while retiring later offers a bonus (plus 0.5% per month).
• 😀 In 2023, one pension point is valued at 36 Euros in Western Germany and slightly less in Eastern Germany. This amount may change yearly, making pension predictions uncertain.
• 😀 For someone with a salary of 2,000 Euros per month over 20 years, they would accumulate approximately 11.1 pension points, equating to a monthly pension of 401 Euros before taxes and deductions.
• 😀 Higher earners, like those with salaries of 3,000 Euros or 4,000 Euros, face higher taxes and health insurance deductions, which means the net pension they receive will be significantly lower than their gross pension amount.
• 😀 The average German worker earning around the national average salary of 3,600 Euros per month will face a pension gap, as even after contributing significantly to the public pension, the net retirement income falls short of maintaining a comfortable lifestyle.
• 😀 A private pension plan, with similar contributions over 40 years, could result in a much higher monthly pension (e.g., 4,400 Euros), potentially far surpassing the benefits provided by the public system.
• 😀 The German public pension system's shortcomings highlight the importance of taking personal financial responsibility for retirement, through strategies such as private pensions or investment in assets like stocks and real estate.

Q & A

What is the percentage of salary that employees in Germany contribute to the public pension system?

Employees in Germany contribute 18.6% of their gross salary to the public pension system.

Why is the German public pension system criticized in the video?

The system is criticized because the public pension payout is expected to decline over time, and it will not be enough to secure a comfortable livelihood in retirement, forcing individuals to seek additional savings and investments.

What are the four key factors used to calculate the public pension payout?

The four key factors are: 1) the number of pension points accumulated, 2) the age at which you retire, 3) the current value of one pension point, and 4) whether you're retiring at the standard age or earlier/later.

How are pension points accumulated in Germany's public pension system?

Pension points are accumulated based on your salary. If you earn the average salary, you get one pension point per year. Earning more than the average gives you more points, and earning less gives you fewer points.

What happens if you retire before or after the standard retirement age in Germany?

If you retire before the standard age of 67, you incur a penalty of -0.3% per month for the rest of your life. If you retire after 67, you receive a bonus of +0.5% per month for the rest of your life.

How much is the current value of one pension point in Germany?

The current value of one pension point is 36 Euros in Western Germany and slightly less in Eastern Germany. This value may change each year.

What is the estimated monthly pension for someone working 20 years with a salary of 2,000 Euros per month?

For someone earning 2,000 Euros per month for 20 years, they would accumulate 11.1 pension points, resulting in a gross monthly pension of 401 Euros, which would be 355 Euros after health insurance deductions.

How does the German public pension compare to private pension plans in terms of potential payouts?

In comparison to the public pension, private pensions tend to offer much higher payouts. For example, contributing 650 Euros per month to a private pension over 40 years can yield 4,400 Euros per month, compared to just 1,400 Euros from the public pension with the same contribution.

Why is the pension payout for higher-income earners still relatively low compared to their salaries?

The pension system caps the maximum number of points a person can accumulate each year. Even high earners cannot receive more than two points per year, limiting the potential pension payout despite earning much higher salaries.

What alternative retirement savings does the video suggest for individuals in Germany?

The video suggests investing in additional savings accounts, private pensions, stocks, or real estate to secure a more comfortable retirement, as the public pension alone will not be sufficient.