If you want to increase your pension from your own savings when you are older, you should start taking precaution as early as possible. The more time left to retire, the easier it will be to raise enough capital for a perceptible pension subsidy. But how much money do you have to save for 500 Euro pension? And how much do you have to put aside monthly to get this amount?
500 years pension subsidy for 25 years
How much you have to save for a 500 Euro pension depends on your age and of course, when your retirement begins. 25-year-olds still have 42 years until the statutory retirement age. So you have 20 years more for wealth creation than a 45-year-old. It is easier for them to raise enough capital to raise their pension.
How much money you need in total depends on how long the pension subsidy is to be paid. If you are between 25 and 45 years of age, your statistical life expectancy is 81 and 82 years, so you would receive 14 to 15 years from age 67 onwards. For security reasons, however, you should expect a significantly longer pension period – at least 25 years. This reduces the risk that they run out of money.
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Capital requirement for 500 Euro pension
First, find out how much wealth you need to be able to pay off the pension for 25 years. Above all, the money should be secure during retirement. A high return is no longer a top priority. For example, you can transfer your savings to a classic savings account. In the last 15 years savings deposits brought here on average 1.5 percent interest. From this account you then set up a monthly payment plan.
In the first year they pay monthly 500 Euro pension. Thereafter you should increase the pension to make up for inflation. The average inflation rate since reunification is 1.7 percent. At this level you should also increase your pension every year. You must take this dynamic pension increase into account when calculating the required capital.
Also keep in mind that capital gains are taxable in principle. Withholding tax and solidarity surcharge are due on interest income – with members of a religious community, church taxes are added. The result: You need a total of 160,000 euros for a pension subsidy of initially 500 euros, which increases each year by 1.7 percent. In this example we counted without church tax.
Save for the pension: put on stocks
The amount of money you need to spend each month to build that much capital depends on two factors: your age and your return. The sooner you start saving, the more time you will have until you retire, and thus capital formation. How much this will be becomes very clear later on when calculating monthly savings rates.
The return has just as much influence. Even with 45 you still have 22 years left until retirement. That’s enough time to bet on high yielding assets like stocks. Pay attention to a wide spread. This is particularly easy and cheap with exchange-traded index funds – so-called ETFs. With the purchase of fund shares, they invest not only in a single share, but in all the stocks of a large stock index ‘- in an ETF on the DAX, for example, in the 30 largest German stock companies.
Funds as investment: How to find the optimal fund
Although stocks and stock indices are sometimes subject to significant price fluctuations. But the long investment horizon allows you to simply sit out temporary losses. This relativises the risks.
Historically, investors who have invested in the DAX and have held their shares for at least 15 years have never suffered losses. This is confirmed by data from the German Stock Corporation. Over a period of 22 years, a DAX investment has never dropped less than 5.2 percent average annual return. In the last 22 years, there were on average even 8.3 percent – despite intermittent price falls during the financial crisis or the collapse of the New Market at the turn of the millennium.
You can not achieve such returns with savings account or overnight deposits. Currently, Tagesgeld brings even with the top providers only 0.6 percent (as of April 2018). Interest rates are unlikely to remain so low over the long term – ten years ago, overnight money averaged 1.91 percent. But the return potential of stocks does not have call money.
More about: interest rates and interest rate forecasts for savings and lending rates
Create strong returns, start early enough
However, you need a high return if you want to increase your pension. Until you retire, you need over 160,000 euros to pay off 25 years 500 euro pension – after taxes, mind you. Also on your price and interest gains in the Ansparphase incurred withholding tax and solos.
The older you are already, the more important is a high return. With the current daily interest rate, for example, a 45-year-old can only save enough money for a 500 Euro pension with iron discipline. With an interest rate of 0.6 percent, he would have to pay just under 574 euros every month to make enough money to retire. Not even half as high is the required savings rate for a DAX investment, if the return of the last 22 years remains constant. Then 243 euros per month would be enough to make enough fortune for 500 euros pension subsidy.
If you are younger, it is easier. If you already start saving at the age of 25 and earn the average DAX return over the last 22 years, you do not even have to set aside 50 euros a month for a 500-euro pension subsidy.
To the advisor: 100 Euro per month save – long-term assets build
Guaranteed lifetime increase the pension
However, savers should be aware of a problem: With a pay-out plan, the pension subsidy is not guaranteed for a lifetime. In our calculation example, you would have used up your savings when you turned 92.
A private pension insurance, however, pays the pension guaranteed a lifetime. To be able to give this guarantee, the insurers must, however, carefully calculate. Cheap direct insurers are already demanding over € 150 a month from a 25-year-old for a € 500 pension if this is to increase dynamically each year.
Another alternative is the private immediate pension. She too is guaranteed to pay for a lifetime. Until your retirement, you can save on your own for your pension and then pay all the capital as a one-off payment in a pension insurance. Depending on the provider, you also need around 160,000 euros in capital for a 500-euro annuity with annual dynamics.
Now calculate your immediate pension
However, both the private pension insurance and the immediate pension have a catch: Depending on the contract your pension entitlements are either not or only partially inheritable. This is different in the payout plan. Here, remaining property passes with death into the estate, so that the heirs benefit from it. In our calculation example, that would be almost € 79,000 after 15 years of retirement.
500 Euro pension is not always worth the same
Incidentally, when planning your pension plan, you should not forget the depreciation of value through inflation. It depends on when you retire how much € 500 pension will be worth. For example, assuming an inflation rate of 1.7 percent annually, 500 euros in 22 years would have only a purchasing power equal to 345 euros today – another 10 years later, it would only be 292 euros.
To the advisor: Daily and fixed – that makes the inflation of your savings