Strategies to Retire Early: Unveiled - Early Retirement Strategies: Effective Methods That Deliver Results
In Germany, the concept of Partial Retirement (Altersteilzeit, ATZ) offers a solution for employees approaching retirement, allowing them to gradually reduce their working hours while still receiving partial income and social security benefits.
Eligibility and Duration
To be eligible for Partial Retirement, employees must generally be aged between 55 and the statutory retirement age, which varies depending on birth year and regulation, and typically falls between 65 and 67. The agreement between employer and employee usually involves halving the work time, and the partial retirement phase can last for up to 4–5 years until full retirement.
During this active phase, employees continue to work regularly for three years. Employers continue to pay social security contributions on a reference full salary basis, despite reduced working hours. The legal basis for ATZ is regulated under the German Employment Promotion Act (Arbeitsförderungsgesetz), often via collective agreements or company arrangements.
Benefits of Partial Retirement
One of the main advantages of Partial Retirement is income security. Employees receive a salary based on reduced hours, plus a partial "bridge benefit" from pension funds to compensate for some of the lost income. This arrangement ensures the continuity of social security contributions to pension, health, unemployment, and nursing care insurance, preserving entitlement to benefits.
Another benefit is the improved work-life balance. Partial Retirement allows for a gradual transition to full retirement, reducing work stress and adjusting to a less demanding workload. Furthermore, it provides employers with the opportunity to manage workforce transitions and retain experienced staff part-time while recruiting new employees.
Other Important Factors
Unemployed individuals aged 58 or older have a claim to two years of unemployment benefit. Retiring at 62 incurs a maximum discount of 10.8% from the standard amount. The combined hours of the main and secondary activities should not exceed 48 hours per week. The amount of unemployment benefit is based on the gross income in the 12 months before unemployment begins. Unemployed people can earn an additional 165 euros per month, allowing for a small mini-job.
The standard old-age pension starts at 65 for employees retiring at 62. There is no limit on the additional income from an approved secondary activity, but it is still relevant for income tax declaration. The reasons for a disability include severe bronchial asthma, severe allergies, severe chronic pain, heart, circulatory, and cancer diseases, as well as stroke.
The duration of a Partial Retirement contract can be freely negotiated up to six years. Partial Retirement allows employees aged 57 and above to step out of the company at 60 and retire at 63. During the passive phase, employees are released "in early retirement" for the following three years. Without a disability, up to 14.4% is deducted from the standard amount when retiring at 62. Employees with a degree of disability (GdB) of 50% or more can retire at 62.
In heavily digitizing industries, many companies may be interested in getting rid of older employees. However, the salary during Partial Retirement is calculated as the last salary divided by two, plus 20% as a top-up amount. Employees can take on a secondary activity, subject to company approval rules, to supplement the reduced salary.
In summary, Partial Retirement (ATZ) in Germany provides a supportive solution for older employees transitioning towards retirement, offering financial and social protections, improved work-life balance, and opportunities for employers to manage workforce transitions effectively.
- In Germany, individuals eligible for Partial Retirement (ATZ) must typically be between 55 and the statutory retirement age, and the agreement usually involves a halving of work time, lasting for up to 4–5 years until full retirement.
- One of the benefits of Partial Retirement is income security, as employees receive a salary based on reduced hours, supplemented by a partial "bridge benefit" from pension funds, ensuring the continuity of social security contributions and entitlement to benefits.
