Dhe number makes you sit up and take notice: last year more people took early retirement than they have since 2013. There were 210,616 exactly, a quarter of all new pensioners. And they didn’t do it out of necessity because the body or the psyche couldn’t keep up. No, they did it voluntarily so that they no longer had to work or to enjoy new freedoms. On average, they retired 28 months before the regular retirement age, i.e. more than two years earlier.
So that this doesn’t end in financial disaster, they have to do what all prospective retirees have to do: create an accurate financial plan that is honest and not guided by wishful thinking. The most important questions are: How much money do I need in old age, what income will I have then, and how can a good investment strategy increase it?
The future need for money is not that easy to determine, but it is a crucial adjusting screw in financial planning. The current editions are the starting point. They need to be adjusted for retirement. Some expenses are then eliminated, such as travel expenses to work, expenses for the children and the loan installments for your own property, which should then be paid off. There is no longer any need to save money. But there are other financial burdens, for new hobbies and travel and possibly your own car if the company car is no longer available. In later retirement, healthcare costs will increase, while travel expenses will probably decrease and cars will be abolished again.
What income will I have?
The next step is to determine the expected secure income. The annual information letter, which gives a forecast for future payments, shows this for the statutory and company pensions as well as private pension insurance. Of these, only the guaranteed pensions should be included in the financial planning, because higher payments through surpluses are possible, but not certain and also unlikely with old contracts with high guaranteed interest rates. Some people still have rental income that is easy to calculate because it increases very slowly at best.
Early retirees must note that they are only allowed to do so from the age of 63 and must have paid into the statutory pension fund for at least 35 years. In addition, they then have to accept deductions of 0.3 percent for each month that they retire early. If you retire at 63 instead of 66, you will get 11 percent less, so a pension of 1500 euros will drop by 160 euros. In addition, you pay fewer years into the pension fund and thus acquire fewer entitlements. “Early retirement is expensive. And should not be underestimated emotionally. There is a lack of a purpose in life, the daily structure, contacts and recognition from colleagues and the boss,” says Michael Huber from the VZ Vermögenszentrum, which often prepares working people for retirement.
An alternative is to start early retirement with deductions, but continue to work part-time. Then it is easier to cope psychologically with leaving working life, and the pension deductions are compensated for by salary and further payments into the pension fund. From next year it will be easier. Then even early retirees can earn unlimited additional income, the salary is no longer partially deducted from the pension.
