Cracking the Code: How to Retire Early in Germany, Even With Deductions
- By Daniel Bakir
- 🕒 4 Min Read
Considering an Early Exit from Work: Is Retirement at 63 Possible for You As Well? - Is it feasible to retire before traditional retirement age?
Let's face it – the concept of "retiring at 63" in Germany is a thing of the past. But that doesn't mean you can't retire early! Although without deductions, the earliest retirement age is 65 – and it'll cost you a bit more. However, we've got you covered, providing guidance on how to retire early in Germany, with and without deductions.
The End of "Retirement at 63"
The term "retirement at 63" used to signal early retirement for individuals who've demonstrated 45 years of insurance coverage. When the legislation was introduced in 2012, the standard retirement age was 65, and early retirement was accessible for long-term insured individuals as of 63.
Fast forward to now, with the gradual increase in the standard retirement age to 67, the eligibility for "retirement at 63" increased accordingly, initially in monthly and then two-month increments. Individuals born in 1961 can retire early without deductions at the earliest at 64 years and 6 months. For those born in 1964 and later, this rises to 65. So, the term "retirement at 63" has morphed into "retirement at 65."
Retire Before Age 65: Requirements and Caveats
So, if you're eyeing an early retirement at 64 or 65, you'll need to prove 45 years of insurance coverage, which we'll refer to as the "particularly long-term insured" retirement option. Here's a list of the requisite periods for pension calculation:
- Compulsory contributions (for employment and self-employed activity)
- Contributions for mini-jobs with employer contributions (proportional if only the employer pays)
- Compulsory contributions/periods for child-rearing
- Periods of non-employed care
- Military and civilian service
- Compulsory contributions or recognition periods due to social benefits
- Replacement periods (e.g., months for political persecution in the GDR)
- Voluntary contributions (if at least 18 years of compulsory contributions have been paid)
While this retirement option is possible, it's essential to understand that without accounting for deductions, retiring early at 63 or 64 results in a lower pension compared to waiting until 67.
Retire at 63, With Deductions: Is It Worth It?
If you don't quite make the 45-year insurance coverage mark, you can still retire early – but be prepared for deductions. From 35 years of insurance coverage, you can claim the "old-age pension for long-term insured" early. There's a catch, though: 0.3% is deducted from your pension for each month you retire earlier, permanently up until death (and even post-death, the survivor's pension is shorter).
Let's break it down: Someone who retires two years early must live with a 7.2% deduction from their pension – and someone opting for the maximum retirement age of 63 and retiring at 67 will face a 14.4% deduction. The deduction is made based on the pension reached so far, not the pension that would have been obtained by 67, meaning you'll net even less in the long run. However, you can offset early retirement deductions by purchasing pension points.
For the required 35 years of insurance coverage, the pension insurance considers the following factors:
- Contributions from employment or self-employment
- Voluntary contributions
- Child-rearing periods (1st 2.5 years of life for those born before 1992 and 3 years for those born after 1992)
- Months of non-employed home care
- Months from pension splitting between spouses/registered partners
- Replacement times (e.g., months of political persecution in the GDR)
- Annuity periods during which nothing was paid due to personal reasons (illness, pregnancy, unemployment, school and university education)
- Consideration periods like caring for a child under the age of 10
Other Important Factors to Consider
Here are a few more reminders:
- Consultation: Consulting an expert from the German Pension Insurance can be helpful in understanding the requirements for early retirement and minimizing deductions.
- Application: Submit your pension application at least three months before the desired retirement date.
- Affordability: Make sure to consider whether you can afford early retirement, factoring in other sources of income, tax burdens, and potential additional employment options.
- Think Ahead: It's crucial to plan your retirement years carefully. The pension insurance calculator can help you estimate deductions and pension amounts, while a thorough financial analysis provides a realistic picture of your financial situation.
In conclusion, retiring early in Germany involves careful planning and a thorough understanding of the pension system. Financial advisors can help you meet the requirements and minimize deductions, ensuring a smoother transition into your golden years.
- When planning for early retirement in Germany with deductions, it's important to know that for every month retired earlier than age 65, a 0.3% deduction is made from your pension until your death, and even post-death, the survivor's pension is shorter.
- To offset the early retirement deductions in Germany, you can purchase pension points, which are calculated based on contributions from employment or self-employment, voluntary contributions, child-rearing periods, months of non-employed home care, months from pension splitting between spouses/registered partners, replacement times, annuity periods, and considerations like caring for a child under the age of 10.
