What can we learn from our Renteninformationsblatt?

Renteninformationsblatt

You might have kind of heard from friends, the news or maybe from your financial advisor that the there will be pension but it might nit be sufficient.

Let us work with facts and look at each individual situation because during your life in Germany the state keeps you up to date.

After working 5 years in Germany you will get a letter to your home.

This letter is an important part of your financial information for later. As we learned in the last article the Rentenversicherungsanteil RV Anteil that is deducted from your salary (18,6%) is not only used for your pension also in case you get disabled to work. This letter tells us how much pension we will get when we retire and how high our pension could be if we are fully disabled (volle ERWERBSMINDERUNG).

So this information is a high value forecast of our finances. What we sacrifice today to provide for tomorrow. 

My call to all of you: the statutory pension will not be enough to cover your expenses when you are old. We will still pay taxes, the day care proportion on it and part of our health insurance. It is essential that you think and calculate how much money you will need later, and what personal "Versorgungslücke" or coverage gap you might have! This is the difference what you between what you need to maintain your standard of living, and what you are actually getting paid for your pension.

Now, let us dive into the important information of this letter bit by bit.

Important information in the first few lines

1) At the top of the front you will find the insurance number, from which your date of birth can be found, here 29/11/1985

2) The DRV (deutsche Rentenversicherung) has saved contribution times and other insurance law relevant times from August 01.9.2009 the time I moved to Germany from Spain. So I started working and contributing at the age of 23. The evaluated records last until March 31, 2019, the pension information was 8 Months later. 

3) I will reach my regular retirement age on December 1st, 2052. I have to work until 67 years until. This is standard retirement age depending on the year of birth. 

Then in the same paragraph you will find two sentences that will kick you off! 

4) “Changes in your personal circumstances and legal changes can affect your expected pension.” - On the one hand, this means that it naturally depends on your own future contribution payments how much you get for your pension. In raw words, also a divorce means that you have to transfer pension entitlements to your ex wife or ex husband (this case is rare) as part of a pension adjustment. Above all, however, there have been numerous reductions in benefits through laws in recent years, the recognition of studying periods became more and more restricted. Do Germans know that when they get married?

5) "Please note that health and long-term care insurance contributions and, if applicable, taxes must also be paid from the pension. On the back you will also find important explanations and additional information. ”

Wait, wait WHAT?? Yes you read correct, we will pay taxes on pension, and who will retire after 2040 (welcome to the club) will pay 100% of taxes. But no worries it will not be that high (because the pension is so little) as now because of course the tax contribution depends on what you will earn, and taking my forecast as example it is almost nothing. The legal excuse is: Hey you paid you RV part as well from your brutto salary, and your brutto salary is not taxed by us, so now is payback time!

Apart from the taxes, from the pension you will also pay your statutory health insurance (KV Beitr?ge) plus the care insurance (PV Beitr?ge).

Rente wegen voller Erwerbsminderung 

Let me explain "volle Erwerbsminderungsrente": You will receive a full disability pension if you can work less than three hours a day due to illness or disability. And not just in your, but in all possible activities.

You will see this information only in the pension sheet if you have been mandatory contributing for the pension insurance for three years in the past five years. If you are contributing willingly in the pension is not induced, that means that freelancers are not protected at all. Also you will get this money only after a waiting period of 5 years.

Financial insider: Now you can understand why me or other financial colleagues advise to have a private disability insurance (Berufsunf?higkeitversicherung) to get the full insured sum you just need to be 50% disabled and this regarding your last occupation, not in general and there is no waiting period at all. Please take that insurance in mind. The younger and healthier you take it the cheaper it is in the long run! And always: invest in yourself, do sport, have a work life balance, eat healthy.

H?he Ihrer künftigen Regelaltersrente

This is the (just) forecast of your pension when you get to the age of 67. 

The first sum is what you already collected and the second sum (please note that it is not on my example as I am self-employed and have to provide on my own) is a calculation of what you will have later. Please have in mind that this is just a forecast, depending on how many years you still have to contribute and how much will be your future salary. 

However, certain conditions must be met for this. For example: You must have paid pension insurance contributions for at least 5 years. This is called the minimum insurance time "Mindestversischerungszeit".

Financial Insider: Important for expats that are staying less than 5 years in Germany, if you are moving back to your country you can apply for a reimbursement of your RV Beitrag. Once you leave later you have to wait to get the money our in proportion to your contribution. 

A very confusing point for new freelancers and founders is that even after stoping paying in the Deutsche Rentenversicherung (that is my case) they still add some time to the “pension insurance”. So is this/my forecast realistic at all? I guess I will get less, since I am not actively contributing anymore!

Rentenanpassung 

This is like an annual pension increase (dynamic). With this part, they are informing us that the pension might get higher. The increase depends of several factors like state laws or for example the development of the brutto income of us citizens. But when was the last time our brutto income got higher compared to the overall living expenses like market prices for living and food? Here inflation and Purchasing Power Loss (Kaufkraftverlust) are NOT included.

In any case, if there will be an increase, you will get a letter with a notification.

The Deutsche Rentenversicherung in general counts with a loss of 1,5% per year. So In our example 100€ in the end will be worth 62€. Yeah!..

Zus?tzlicher Vorsorge Bedarf

But there is also the demographic factor: The number of pensioners is growing in relation to the number of contributors, whose contribution burden can only be increased to a limited extent. That is why pensions must rise more slowly than wages.

With this paragraph they are telling us that there will be a gap in pension between our pension and our income (tell us something new, right?) and we need to provide on top to our own to close this gap (Versorgungslücke). We can take care of this with private investments/pension plans, having in mind the inflation and purchasing power loss! 

Since Christmas is coming, what a wonderful timing to gift yourself and starting investing for your personal future with a strategic pension plan. And the good news: the money you get in pension is for life and you will get it wherever you live in the world. So you better take care of yourself and live a healthy life as long as possible, to profit as much as possible from your pension.