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Many people put off retirement planning — but the sooner you take care of it, the better. A solid retirement plan helps you avoid poverty in old age, close your pension gap and live financially carefree in retirement. Sounds good and obvious — but how do you proceed, what retirement planning options are there, how do you plan your strategy and are ETFs a clever addition?
Statutory pensions alone are often insufficient to maintain living standards in old age. The average pension in Germany is 1,600 euros gross — for pensioners with 45 years of contribution (as of 2024, WirtschaftsWoche). Taking into account all old-age pensions, it is only around 1,100 euros.
In addition to the amount of contributions you have paid, your insurance periods therefore play a significant role in the amount of your pension. (You can find out how the German pension system works and how your pension is calculated in blog post read up.)
Many people therefore experience a significant drop from their last salary to their first pension when they retire. It is therefore important to know your own pension gap. The pension gap is nothing more than the difference between your last income and your expected pension. Closing this gap is extremely important in order to be able to maintain your standard of living even after retirement.
Women in particular are disproportionately at risk of poverty in old age. Finally, there is also a gender gap in retirement, the so-called gender pension gap: Women receive significantly less pension than men — partly because they are still more likely to experience career losses (in salary, working hours) as a result of care work. It is therefore all the more important for them to make provisions elsewhere. But what are the options?
The German 3-pillar model of retirement planning consists of the following components:
As mentioned above, the statutory pension is financed by contributions to the German Pension Insurance. It depends on your contributions and insurance periods.
➡️ Tip: Check your pension statement regularly to know your expected pension amount. This also allows you to determine your expected pension gap more precisely.
Many employers offer a company pension scheme (bAV), which invests part of your salary in a pension product free of tax and social security contributions. The employer often pays an employer subsidy, making saving for retirement provision particularly worthwhile.
ℹ️ Information: Employers have no obligation to offer a company pension scheme (bAV) of their own accord, but you can request it as an employee. Then your employer must offer at least a pension through salary conversion.
Possible pension products within bAV include direct insurance, pension funds, pension funds, support funds and direct commitments. Each model has different regulations regarding taxation, flexibility and payout options.
In order to close your pension gap, you can also make private provisions. There are various approaches here:
Riester pension: The Riester pension is a state-sponsored pension insurance that is particularly attractive for families with children and high-income earners. It offers allowances and tax benefits, but requires regular deposits and is subject to certain payout requirements.
Rürup pension: This form of retirement provision is more suitable for self-employed and freelancers, as it is tax-deductible. The contributions can be deducted from tax during the savings phase, but the payment is taxable at retirement age.
Die Private pension insurance is an insurance solution that allows you to save capital through regular payments, which is later paid out to you as a lifetime or one-time pension. It usually consists of classic or unit-linked insurance. With traditional private pension insurance, your money is invested in a security-oriented manner, usually in bonds, which gives you a guaranteed pension but with a comparatively low return. With unit-linked pension insurance, your money is invested in investment funds — meaning: higher return opportunities, but also more market risks.
Depending on the tariff, there are different guarantees and options for survivors. This variant offers more security, but is often associated with higher costs.
You'll also stumble across ETF pension insurance here. These are a special form of unit-linked pension insurance, which invests your money in cost-effective ETFs. It combines the advantages of ETFs (broad diversification, low costs, attractive return opportunities) with the tax advantages and potential pension payments of an insurance company. It is more flexible than traditional pension insurance, but you bear the investment risk. You also have higher product costs than if you invest yourself.
Of course, you can also Invest yourself: You don't have to use a “ready-made” product, but you can also decide for yourself and invest your money freely, for example in real estate, stocks or precious metals. Here you are more flexible, you can adjust or pause deposits at any time, and are less bound to terms, but you may also have to put in a little more time and the investment risk is entirely yours. This eliminates the high administrative costs associated with traditional insurance policies. DIY investing in ETFs is also possible instead of using ETF pension insurance.
If you choose the “do it yourself” approach, it is important that you invest over the long term so that market fluctuations balance out and that you invest in different asset classes and products to diversify your risk, rather than putting all your eggs in one basket.
Also consider how you want to withdraw your invested money later.
Once you have informed yourself about the various options, the question quickly becomes how much money you should set aside for retirement in the first place. If you do your research, you will often read 10 to 20% of your net income as a guideline. This rule of thumb is not feasible for everyone. It is much more important to consider your individual situation. Ideally, first calculate your monthly pension gap and calculate it to your expected lifetime — use the average life expectancy as a basis, for example, or calculate even more conservatively. You'll soon find that this calculation results in a considerable final sum. This can be a shock for now, but it helps you to determine your necessary savings amount.
And don't worry! If you invest wisely and still have time until retirement, you can make your money work for you so that you have to save less money than you might think at first glance.
An example:
Assume that your pension gap is €1,000. You retire at 67 years of age (current statutory retirement age). You assume that you will live another 16 years (*female life expectancy in Germany = 83 years, Federal Statistical Office 2025). Means: 1000€ (pension gap per month) x 12 = 12,000€ for one year
€12,000 *16 years = €192,000
How much would you have to save on your current account every month if you start at the age of X?
· With 25:380.95€
· With 35:500€
· With 45:727.27€
How much would you have to invest monthly with a 7% return p.a., if you start at the age of X?
· With 25:67,24€
· With 35:140.71€
· With 45:316,46€
It's worth starting early. Because that's how you benefit from the compound interest effect.
It is never too late to plan for retirement. Because it is always good to set something aside and make provisions for old age. But of course you have to set aside more money per month, i.e. choose higher savings rates to close your pension gap as well as possible.
There is no one best retirement plan — but a combination of statutory, corporate and private pension provision. The earlier you start, the better. Pay attention to costs, flexibility, and the time horizon that you have available for retirement planning. Review your strategy regularly and adapt it to a life situation so that you can retire carefree.
