What is your retirement plan
11 tips: How to best provide for old age
Even if the Riester and Rürup pensions appear attractive at first glance, they are generally controversial. Leading economists recently described the Riester pension as inefficient and are even calling for it to be abolished. In the opinion of the experts, the Riester pension does not make sense, especially in times of low interest rates. Instead, other forms of private pension provision should be encouraged.
It is best to get detailed advice before you decide on a form of government-subsidized investment!
Home ownership is still popular
One of the most popular forms of investment for old-age provision in Germany is still the home. For many people this has not only a financial, but also an emotional value. You should pay attention to the following if you want to purchase your own home as a retirement provision:
- The region is crucial: buy at a low price in a region that is likely to increase in value.
- Avoid overpriced real estate bubbles, which currently exist mainly in large cities, on the North Sea and in the Lake Constance region.
- Benefit from the currently low interest rates on loans.
- Think about whether you want to live in your own home in old age or rent it out.
- Make sure you have solid financing with a high equity ratio.
Start as early as possible
The same applies to home ownership: the earlier you start saving, the more profitable it is as a retirement plan. But be sure to pay attention to regional and periodic price fluctuations and avoid the currently overpriced real estate markets.
Does life insurance make sense as a pension?
The latest studies show: Life insurance no longer makes sense as a pension. Experts therefore warn against taking out life insurance at the moment. The reason for this is the lower guaranteed interest rate:
- German life insurers currently only offer 1.25 percent or less interest.
- This guaranteed interest is only granted for the savings component, but not for the contributions.
- Experts therefore see the compensation for inflation as jeopardized by the low guaranteed interest rate.
- At the same time, the profit participation of the companies also falls, which also has a negative effect on the return.
Unsuitable as a retirement plan
Life insurance is therefore only worthwhile for protecting your family in the event of death. As a retirement provision, it is currently no longer a profitable model.
Separate family and retirement provision
As described in tip 8, you should definitely separate your family and retirement provisions. What is bad as a retirement provision can be useful for protecting your family. Experts therefore still recommend life or term insurance, especially for married couples with sole earners.
Higher returns with funds and ETFs
Finally, you can still think about whether you want to invest part of your money a little more riskily, but much more profitably than with the classic options of old-age provision. The funds are currently enjoying increasing popularity as the already low interest rates in other savings contracts continue to fall. Remember: Funds and ETFs are both an opportunity and a risk.
In fact, you can use funds to build up a profitable retirement provision on the stock market. You must pay attention to this with this type of investment:
- The younger you are at the beginning of your investment, the better you can sit out price fluctuations and the more profitable funds are as retirement provision, as the time until the pension is paid out is longer.
- Despite price fluctuations and three stock market crashes, savers have hardly made any losses since 1965, as the Dax rose steadily between 1965 and 2014.
- Experts therefore recommend an investment period of at least 13 years.
- The average return for all ten-year periods since 1965 has been 8.1 percent annually.
- Never bet on just one fund, spread the risk. One possibility for this would be ETFs on market-wide stock indices.
Savings plans: secure numerous advantages
You should work with savings plans for funds and ETFs as well as for classic, risk-free forms of investment. With a savings plan, fixed amounts are paid into a form of investment at regular intervals. A common distinction is made between a state-sponsored, a bank and a fund savings plan.
- The state-sponsored savings plan
The Riester and Rürup pensions are known as state-sponsored savings plans. See tip 6: "State-funded provision".
- The bank savings plan
The bank savings plan is one of the safest investment methods, but at the same time it is also not very profitable. Here you put a fixed amount into an account at the bank every month. You receive a fixed interest rate for these assets and have no risk of price fluctuations. All deposits up to 100,000 euros are also legally protected by the deposit insurance should your bank file for bankruptcy.
- The fund savings plan
With a fund or ETF savings plan, you invest in stocks, bonds or commodities on the capital market. You benefit from price increases and can record high returns. At the same time, however, you also run the risk of price losses. However, since these often only slip into the red for a short time, according to experts, the fund savings plans with a minimum term of 15 to 20 years are currently the most profitable retirement provision. However, no one can give you a guarantee for this.
Pay attention to the individual situation
Which type of old-age provision makes sense depends on your age, your financial situation and the individual phase of your life. You should therefore definitely seek professional advice.
Do not cancel your retirement plan early
Unemployment, a prolonged illness, children or divorce - there are situations in life in which money can become scarce. Even if the monthly running costs have to be reduced, life and pension insurance and especially Riester pension insurance should not be terminated prematurely. A contribution exemption is better.
For example, if you were to cancel your Riester pension due to a financial bottleneck, you would lose a lot of money. Because you would have to pay back the government funding that you have received for this contract in recent years to the tax office. This is a basic allowance of EUR 154 per year and, if applicable, a child allowance of up to EUR 300. Better make the contract exempt from contributions - then it will remain in place and your previous Riester capital will continue to earn interest. During the exemption from contributions you will of course no longer receive any government allowances.
The same applies to life insurance or private pension insurance: If you can temporarily no longer pay your contributions, do not terminate the contract. Because:
- Your relatives would no longer be financially secure if something happened to you.
- You would be giving up some of your retirement savings.
- If the contract is terminated early, you will receive the surrender value of your insurance. This is v. a. In the first few years of contributions, it is usually very low; it may even be below the sum of the contributions paid (since the insurer also uses the contributions to cover the costs associated with the conclusion and establishment of the contract).
You can also read our guide to canceling or selling your life insurance?
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