Technical Analysis

The clever way to provide for old age

The Germans have to have more confidence in investing. Because the statutory pension is not enough for many to maintain their standard of living in old age. Those who make private provision in good time do not have to worry about falling pension levels or poverty in old age.

Global private financial wealth has risen again in the past year, according to the Global Wealth Report by the Boston Consulting Group (BCG). “The stock market rally and the strength of many currencies against the dollar have given global wealth growth a huge boost,” said Anna Zakrzewski, BCG partner and author of the study. But the findings from the Prosperity Report also reinforce the fact that much of this wealth growth is bypassing Germans:

“The comparatively moderate growth in Germany is due, among other things, to conservative investment behavior. 36 percent of private assets in this country are savings deposits or cash. 19 percent of German private assets are in stocks and funds. (Global Wealth Report, BCG).

Globally, people invest far more in stocks and mutual funds. Overall, 27 percent of global wealth is in savings or cash and 35 percent in stocks and mutual funds. “Due to the relatively low proportion of investments in stocks and funds, Germans have benefited less from the strong stock exchanges,” explains Zakrzewski.

It does not have to stay like this. According to a recent study, the average annual return on stocks is 7%. Depending on the risk profile, Germans can easily invest part of their savings in globally diversified and automated investment solutions. With the Raisin Invest ETF Robo, going public is just a stone’s throw away. In this way, you can build up an old-age provision in addition to your pension in the long term. Simply select a portfolio and get started:

To the ETF Robo

The pension level is falling

The majority of Germans are aware of this situation. 70% of those surveyed in a study by the insurer Ergo assume that the level of pensions will continue to fall. Only 6 percent said they would be financially better off in retirement. Significantly more than half (56%) are prepared to have to bake smaller rolls in old age. However, one fifth of the population still state that they do not make any provision for old age.

The level of pensions will probably continue to fall in the coming years if calculations by the German pension insurance are to be believed. The reason for this development is that pensions are increasing in nominal terms, but not as much as wages.

There is more to old-age provision than the statutory pension.
An average earner who retired in 2003 received 53.3% of their net income as a pension at the time – by 2030 there will only be 44.3% for new retirees. How far the pension level will actually fall in the future depends on various factors. Among other things, the labor market situation and the development of the age structure of the population play a decisive role.

Pension calculation under criticism

The calculations are based on the standard pension that comes about with an average income and 45 years of continuous payment of contributions. However, as statistics show, far from all people achieve this maximum number of years of contributions. The average age for men is 42 and for women it is only 28 years.

According to the University of Freiburg’s Pension Atlas Germany, the actual pension levels could be much lower. Accordingly, it hits the 25-34 year olds the hardest. In 2035 you can only count on 38.6 percent of your last income. The researchers conclude:

“The resulting average pension gaps in the youngest and middle age groups are 801 euros and 771 euros per month, respectively.” (Pension Atlas Germany)

Poverty in old age is increasing

The old-age provision is therefore calculated from the pension plus X. Without private old-age provision, it will be difficult for young employees to close a pension gap of EUR 801 and maintain their standard of living in old age. Poverty in old age is already a serious issue in Germany. Women, single parents and single people are particularly at risk. “Since women more often take a break during their working lives to have children or only work part-time, they acquire fewer pension entitlements than men on average,” says a report by the Federal Statistical Office. Poverty in old age can also affect people with long periods of unemployment and low-paid jobs. Demographic change is responsible for this.

As early as 2035, the phenomenon could become a dramatic exception. By then, the proportion of pensioners who have to live in poverty should increase by a good 25%, according to a study by the Bertelsmann Foundation from 2017. Overall, one in five pensioners should then no longer be able to live on the statutory pension alone.

No reforms in sight

Anyone hoping for solutions through politics could be disappointed. Far-reaching reforms are not in sight. The German Institute for Economic Research (DIW) reports that “the aging of German society is putting considerable pressure on the pension system to reform”. The researchers assume that “incentives for later retirement can stabilize the pension system”. This approach has already become more concrete with the increase in the retirement age to 67 years. The debate about further raising the retirement age to 71 is already in full swing. The only alternative would be to increase the contributions to the statutory pension insurance. In any case, the coalition parties have not yet come up with a major innovative draft for a reform of the pension system.

Even those who can show a continuous work history and above-average earnings have to think twice about whether early retirement is affordable. Anyone who retires earlier has to accept significant cuts of 0.3% per month on their pension. A clever way to save for old age must therefore be taken at an early stage. This goes far beyond the statutory pension.

Additional private provision essential

Against this background, private, additional old-age provision seems to be essential for the younger age groups. With a long investment horizon, investments in the global financial market are one way to close the pension gap in the long term. “In a direct comparison, saving securities with ETFs often brings more money into the account than a net insurance tariff,” writes the consumer portal Finanztip. The principle is simple: Investors invest a small amount over a long period of time. In this way, you can gradually build up a fortune over the long term and benefit from the performance of the global stock and bond markets.

There are already savings plans without additional costs, eg with the ETF Robo. From EUR 50 per month, investors can invest globally in diversified ETFs and index funds. Further information is available here:

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Risk warning: Every investment in the capital market is associated with opportunities and risks. The price of investments may rise or fall. The value of the mediated ETF and index funds is subject to market fluctuations and the following risks: 1. General risks of capital investments (such as economic risk, interest rate risk), 2. Securities-specific risks (such as share price risk, credit risk), 3. Special risks of investments in investment fund shares, 4 .Special risks of investments in ETFs and index funds, 5. Special risks in the processing of securities orders. Detailed information on the individual risks can be found here.

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