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We Are All Going to Grow Old. What Should Your Life Look Like by Then?

April • 30th, 2020
by the Horbach Munich for Expats Team

Start planning your pension in Germany now


Currently, we are experiencing how just one event out of our control can bring our entire lives to a halt – the Corona virus. What if we told you that now more than ever it is pivotal for you to take your financial security into your own hands? What if one small measure taken today could be the main foundation of securing your financial future?


Let’s see it as an opportunity to learn all about the benefits the current situation has to offer! To provide you with an example we prepared an article regarding the pension system in Germany. 


Did you know that you are legally obliged to conduct long-term financial planning?


In fact, it is mandatory that most people working in Germany pay a small part of their income to the German state. More precisely to the so-called “Gesetzliche Rentenversicherung” (social pension fund). With the collective budget, the state dispenses payments to the current pensioners.


Unfortunately, this system faces two grave problems:


1. Your money is spent right away and not saved up for your own pension. The amount you contribute with monthly and what you receive during retirement is not equal.


2. Demographics continue to change:

    - An increasing decrease in childbirth and a rise of elderly population

    - Life expectance simultaneously continues to increase


This leaves a very sparse sum to distribute among pensioners.


This means that when you retire you will receive significantly less than you contributed. At best. In fact, the situation is so critical that the official webpage of the state’s system strongly advices workers to privately contribute to closing the gap by adding extra building blocks.


Does this concern anyone under 60? Yes!


Due to the inefficiency of the system, it is strongly advised to take care of your pension gap as soon as possible, because it is predicted that this system will be insufficient in the long run. Luckily, Germany’s so-called “three-layer system” allows for complementary constellations aiming at the best possible coverage: (do these layers fill the gap? it is a carefully planned combination of all three that which guarantees the best possible coverage and if done in time then contributes to closing the gap, yes. What is more, each layer provides different add-on benefits (flexibility, tax-benefits, savings, subventions, etc) on top)


First layer...includes the social pension fund and the Rürup pension.

This model entitles some people to a tax deduction while saving up before retirement. It’s the least flexible from all three layers, hence not applicable to all expats, but for those who can profit from it, the Rürup can save them taxes while helping close the gap.


Second layer...holds Riester and company pension scheme (bAV)

The former is a piggy bank with two slits, available for a selected group: not only you invest for your future, but the state does as well providing you with either tax benefits or subventions, even as a student! It is especially attractive for those who have children.


Did you also know that thanks to recent changes in the law, employers are now under the obligation to provide with a company pension scheme? If you are a business owner and have not done this for you employees yet, or if you are not sure whether the plan your company is offering is your best option, we’re here for you. We will provide cost-free assistance in this matter, any day of the week.


Third layer...consists of the private pension insurance.

It’s as flexible as it gets and, in our experience, also the most flexibly applicable to nearly all expats in Germany! If you want to find out how you can make use of this benefits regardless how long you stay in Germany, we can provide you with a tailored analysis.



Which layer fits your situation?


Which of these layers makes sense to you depends on what your occupation is. This does not only mean the field of occupation but also the hierarchical position. The situation is not the same for a freelancer or a business owner or a student or an employee in a managerial position. Additionally whether you have a family, whether/how long you want to stay in Germany, and several other variables are important too. If you want to know more about which one is the best for you ask us for a private consultation free of charge.


Okay now you know WHAT. But why NOW?


There are three reasons it is important to take action now:


1. There’s no such thing as “too early”


Everyone faces an individual gap which increases as time goes by. What you receive from the social pension fund will be less than what you need to maintain your living standard. We calculate this for our clients on a daily basis.


The investment necessary for closing the gap depends not solely on the age you start at, but also on factors such as e.g. the inflation rate and your life span (among others).  Here keep in mind that it is always better late than never. Nevertheless, we strongly advice in favor of investing small amounts for a longer period of time, to profit from the compound interest effect the most. 



2. Benefit from the compound interest effect


Depending on the layer (see above which three layers exist) you invest your money in, there is low or high interest. A yearly interest increases your savings – and generates new interests anew. 


3. Corona has corroded the market in many ways – but it has also enabled possibilities otherwise rare to come across


You should not disregard how in the long run that can turn the situation profitable for you. Most pension insurance products are investment-based, and there could not be a better time to invest than now.

Furthermore, many insurance companies have adjusted their terms and conditions to help clients navigate through the current course of events. If you already have done something for your pension and want to check if everything is alright and that you are getting the best possible deal, we are also here for you.


Questions? We are here for you!


By now, you are probably wondering: From which layers can I profit? How big is my personal gap? Is there an impact on my pension when I have to move back home? What is the impact of Corona on my pension?


We understand you have many questions in these crazy times. If you have specific personal questions and want them answered right away, we are happy to help you! Just scan the QR and easily get in touch with our consultants:




Get your Expat in the City Discount! 


Due to our exclusive cooperation with Expat in the City we provide our consultations cost-free and a 50% discount on the very core of our services: a customized financial plan




HORBACH Munich for Expats – because financial freedom should be a right, not a privilege.


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