Generous Retirement Benefit and Employment: "Earnings Skyrocket to 1600 Euros" - Generous Combination of Pension and Employment Yields Unprecedented Income for Recipient: "Never earned this much before"
In Germany, a significant change has been introduced in the pension system, providing an attractive option for workers who wish to retire early while still accumulating more pension points. This change, effective from January 1, 2023, has been met with enthusiasm by many, with over 116,000 people taking advantage of it in 2023 alone.
The Fundamentals of Early Retirement Pension Calculation
If someone works continuously for 35 years between the ages of 18 and 63, they can accumulate pension points proportional to their earnings during that time. Assuming they work full-time at or around the average income, they earn about 1 pension point per year. Therefore, 35 years correspond to roughly 35 pension points.
Retiring early, say at 64, involves a reduction in the pension due to an access factor. The standard retirement age is currently 67, and retiring early means a reduction in the access factor. For instance, retiring at 64 results in a 10.8% reduction in the pension due to the access factor.
The monthly pension can be calculated using the following formula:
Typically, the pension type factor for old-age pension is 1. The current pension value (Rentenwert) in 2025 is about €38 per pension point per month.
Given these factors, a person with full average earnings who retires early at 64 can expect an estimated monthly pension of around €1,180 before taxes and health insurance deductions.
Part-Time Work After Early Retirement
It's important to note that part-time work after early retirement can increase a person's pension via additional points. However, pensions already paid out are generally reduced for early retirement and adjusted if earnings contribute to additional points later.
Real-life Examples
Two individuals, Matthias and Rainer, have taken advantage of this new rule. Matthias, a 64-year-old key-account manager, applied for early retirement in October 2022, while Rainer, a 65-year-old kindergarten teacher, started receiving his first old-age benefits on October 10, amounting to 1300 Euro per month.
Rainer, who reduced his hours from 39 to 30, affecting his retirement provision, continues to work part-time, earning 2000 Euro net per month. His total net income is now 3600 Euro per month, more than he's ever earned in his life. Rainer switched from the kindergarten to the outpatient care of mentally ill people to improve his quality of life.
Matthias's friend, Michael, was the first person in his circle of friends to take advantage of the new rule, continuing to work full-time without his pension being reduced.
This new rule has significant implications for the early retirement pension from age 63, making it more attractive for many people. The policy's aim is to motivate skilled workers to stay in their jobs longer.
Matthias's application for early retirement was processed quickly, within half an hour online. Rainer applied for early retirement in September 2023, receiving 1600 Euro net per month. By the time Rainer reaches his regular retirement age in September 2025, he expects to have saved around 30,000 Euro.
Rainer's pension advisor had recommended building up assets in the coming years. Given the new opportunities for part-time work and early retirement, it seems that many retirees in Germany are now doing just that.
Community members might find it beneficial to consider vocational training programs that could increase their income from part-time work after early retirement. This could help maximize personal-finance and business opportunities, as the extra income could contribute to retirement savings or personal expenses. Moreover, understanding financial aspects within the context of the community policy and early retirement pension calculations can equip individuals with the knowledge needed to make informed decisions.
