Thuringia is a retirement haven!
In a recent discussion, financial expert Andreas Behn from the Thuringia Consumer Center shed light on the topic of old-age provision. Behn emphasised the importance of supplementing the statutory pension and offered valuable advice for those seeking to secure their financial future.
One key aspect to consider when planning for retirement is the investment risk associated with private pension insurance products in Germany. These products often carry significant capital market risk, as your pension depends on the investment performance managed by the insurance company. If investments perform poorly, you may risk losing part of your pension capital. A more advisable strategy is self-managing your investments, focusing on low-cost broad-market ETFs, which tend to have better risk-adjusted returns over the long term and avoid excessive fees paid to insurance companies.
Another important factor to consider is liquidity. Once you start receiving a pension from a private pension insurance, you often cannot access your capital lump sum anymore, reducing financial flexibility during retirement. Self-directed investments in ETFs or real estate offer better liquidity since you retain control over your assets, allowing withdrawals or portfolio adjustments if your circumstances change.
Tax implications also play a significant role in private pension provision. Investments like ETFs are subject to tax on returns when you withdraw money in Germany. You must declare earnings on form KAP during your tax declaration. Robo-advisors commonly reinvest dividends automatically, but there is a tax called the "Vorabpauschale" on these reinvested dividends (since 2019). However, you can take advantage of tax-advantaged retirement schemes like the Rürup Rente, which allows you to deduct up to 88% of contributions (up to €24,000 per year) if done through certified providers.
Ethical considerations are increasingly important in pension provision. Incorporating sustainability criteria (ESG investing) into pension portfolios can affect risk and returns. Balancing ethical investments with diversified portfolios is crucial to ensure pension stability while supporting sustainability goals.
In summary, a robust private pension strategy in Germany involves active self-management of investments, leveraging tax benefits smartly, ensuring liquidity, and thoughtfully integrating ethical considerations without compromising risk management. Traditional private pension insurance plans may not offer the best value due to high costs, inflexible terms, and investment risks borne solely by the insured.
To find a suitable strategy for old-age provision, one should ask six questions, according to Behn. It is crucial to check if one is protected against fundamental life risks, such as through liability or disability insurance. A consumer should first check if they have enough liquid funds for short-term expenses before starting to save for old-age provision. Always pay attention to costs when choosing an investment product, as every cent more in costs can rob one of the return. It is recommended to have an emergency fund of 3,000 to 4,000 euros that is readily available. The question catalog with the six basic questions helps in the selection of an investment product.
Dietmar Bartsch, a member of the Left Party Bundestag, recently inquired about the pension statistics in Thuringia, which ranks last in pension statistics for both men and women after 45 years of insurance. This underscores the importance of proactive planning for old-age provision to ensure a secure and comfortable retirement.
For independent advice, one can seek help from the consumer advice center. It is essential to take care of a supplement to the statutory pension early on, says Behn. And remember, relying solely on the statutory pension and not making private contributions may not be sufficient for maintaining the same standard of living.
[1] https://www.finanztest.de/finanzen/pension/private-pension-insurance-costs-and-risks-8508826/ [2] https://www.finanztest.de/finanzen/pension/private-pension-insurance-taxes-8508828/ [3] https://www.finanztest.de/finanzen/pension/private-pension-insurance-ethical-investments-8508830/
Here are two sentences that contain the given words and follow from the text:
- In addition to supplementing the statutory pension, one can also seek independent advice from the consumer advice center to find a suitable strategy for wealth-management and personal-finance, considering factors like investment risk, liquidity, tax implications, and ethical considerations.
- To further secure their financial future, individuals might consider self-managing their private pension with low-cost broad-market ETFs, which offer better risk-adjusted returns over the long term and can provide better liquidity compared to traditional private pension insurance products.
