Retirement: Nine myths you need to know

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By: Caroline Schaefer


Myths and misconceptions are stubbornly intertwined about pensions. A summary of what you need to know about retirement planning.

Frankfurt – Hardly any other topic is as complex and much discussed as pensions in Germany. Many associate retirement with old age poverty. According to the Federal Ministry of Social Affairs, every fifth person receiving a pension has less than 500 euros a month available. Given the coronary pandemic, rising costs for consumers and appalling rental prices, the burden on the portfolio is huge.

But getting an overview of the pension system is not that easy. There are many misconceptions about the provisions on old age in the Federal Republic. An overview of the myths that retirees need to know.

1. Pension provision in Germany: does the pension come automatically?

A common assumption is that the pension is automatically paid into the account each month when you retire. However, this is not true.

Some misconceptions and myths have remained around pensions for years. Contrary to many people’s beliefs, taxes should also be paid on retirement. (symbol photo) © Frank Hoemann / Sven Simon / Imago Images

All pensions from legal pension insurance must be applied in writing. German pension insurance recommends filing a pension application about three months before the intended start.

2. Retirement provision in Germany: Should the pension be taxed?

You should also pay attention to pension taxation. The idea that pensions are tax-free is widespread, but wrong. Pensions are generally subject to income tax or payroll tax. However, money is not fully taxed.

Anyone who retired before 2005 had to pay tax on only 50 percent of their gross pension. This percentage increases every year. From 2020, the share of taxable pension will increase by only one percentage point per year, previously by two percentage points. So if you retire in 2022, you will have to pay tax on 82 percent of your pension. Anyone retiring in 2040 or later should expect their pension to be fully taxed.

2022 82 percent
2023 83 percent
2024 84 percent
2025 85 percent
2026 86 percent
2027 87 percent
2028 88 percent
2029 89 percent
2030 90 percent

3. Retirement: Does a rehabilitation stay reduce later retirement?

Many assume that staying in a rehab clinic will lower future pensions. On the contrary: During rehabilitation, compulsory contributions are paid by the pension insurance at the rate of 80 percent of the previous gross salary, which increases the right to a later pension. This was announced by the social association VdK Baden-Württemberg. In addition, successful rehabilitation can increase the duration of employment and thus achieve a higher pension.

4. Is there a pension until you have worked for 15 years?

You do not need to have worked for at least 15 years to receive a pension from the pension insurance system. The minimum insurance period for the standard old-age pension is five years – and it has been since 1984.

1947 to 1963 gradual increase up to 67 years
From 1964 67 years

5. Can you earn unlimited money in addition to your pension?

Can I continue to work as a retiree? Anyone who claims the pension before the legal retirement age or receives it due to reduced earning ability can earn a maximum of 6300 euros per calendar year without reducing the pension. Those who earn more may lose part or all of their pension entitlement. Once the standard retirement age has been reached, there is no longer a limit.

We are talking: should everyone work until the age of 67? This is not entirely correct. Only from the year of birth 1964 the standard old-age pension is 67 years old. For those born between 1947 and 1963, the standard retirement age will be gradually increased. Anyone born before 1946 is not affected by the regulation. Early entry into old age pension is also possible, but only at a discount.

6. Can you retire at age 63 after 45 years?

Anyone who has been insured for a particularly long time, for example after 45 years, can generally retire early. However, as the retirement age is gradually increasing, the retirement age also varies with the year of birth, according to German pension insurance.

Anyone born before 1953 can retire at age 63 after 45 years of unpaid insurance. From the year of birth 1964, retirees can retire at age 65. However, the German pension insurance pointed out that the old-age pension for people with particularly long-term insurance cannot be taken ahead of time.

7. Retirement provision in Germany: widows’ pensions come only to women?

The assumption that only women receive widow pensions is also persistent – and wrong. Because: Since 1986, both women and men have equal rights in the pension insurance system. Men and women are entitled to a survivor’s pension if their spouse has paid contributions for at least five years.

In the so-called trimester of death, ie in the first three months after death, there is a full family pension. After that, your income will be taken into account.

8. Are the last years before retirement particularly crucial?

It is often said that the pension amount consists mainly of the last years of work. This too is a mistake. The amount of the pension is calculated from the entire life of the insurance. All years of insurance are treated equally.

9. What does raising children for retirement mean?

Those who care for children and therefore work less or not at all are still entitled to a pension. “By the time you raise the children you will be decided as if you had paid contributions based on the average income of all the insured”, explained the German pension insurance.

If the child was born before 1992, up to two years and six months of the child’s growth periods count as children. If the children were born in 1992 or later, the loan is up to 3 years for children under pension insurance. “Converts, a year for raising children brings you about 34 euros a month pension,” it says. But beware: You must apply for parental leave yourself. Good news for retirees: From July 2022 pensions in Germany increase. The Federal Cabinet has initiated the increase. But there are also clear criticisms.

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