Retire early: here’s what you need to consider when applying and paying taxes

Pensioner jogging across a bridge (symbolic image)

Early retirement – is it possible and can I afford it?? The case study of Peter K. shows what applicants need to consider and how they can calculate their actual pension.

Munich – When it comes to retirement, Peter K. (name changed) did not give a thought for many years. Everything went well in the job, in the family too. Everything will work out, was his attitude. Now the employee, who has worked for a publishing house in Munich for over 20 years, is 63 years old and divorced. Many a lifelong dream has been shattered… And the pension*?

Retire earlier and lighten the load

According to the latest pension info, when he retires at 1.12.2024 his retirement age of 66 years has reached, with monthly 1659.09 euros may expect. Provided that he continues to pay contributions to the same extent as before. And that’s where his worries begin.

Peter K. is a commuter and leaves a lot of energy on the way to the publishing house. In other words: the work is still fun, but retiring earlier and thus saving the commute would of course be a great relief. Who knows how long his health will last?.

Early pension: Consultation

Early retirement – is that even possible?? Full 45 years of insurance, the prerequisite for a discount-free early retirement, he does not bring together. Or do military service and studies count? And if so, how? Peter K. has also made some private provisions, so he could already afford a few reductions. A consultation with the pension insurance* should bring clarity.

Actually, there is no reason to be nervous. Peter K. it is nevertheless. He still has the experience of his now 91-year-old mother in mind. She was shocked after her pension interview: "What, you’ve never worked a day in your life," she was told. The mother of four children felt humiliated. But for Peter K. The appointment begins with good news. The insurance history is complete. All proofs (see checklist) available.

And from school and university, the "eternal student" is still credited with eight years as contribution time. This doesn’t add a penny to his pension, but it does add up to a good 40 years of credited service. And that means: Peter K. could receive with deductions, for example, this year at 1. December in pension go – with 1422 euro monthly in the bag.

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Peter K. Could top up his early retirement pension

That sounds quite good. Speaking of school: He feels a bit as if his life is being graded. The fact that he has made good private provisions is in any case worthy of praise by the advisor. By the way, the early pension could be topped up – with a 25.000 euro one-time payment, 110 euros more would be possible. This could pay off if you consider that savings hardly yield any interest and that life expectancy has increased. His grandfather lived to be 74, his father 84 – "and maybe I’ll live to be 90.

By the way, the amount for the regular pension differs slightly from the last pension info in the consultation calculation – by almost 16 euros. As of now it would be 1643,91 instead of 1659,09 Euro. How much Peter K. of which must be taxed, is not so easy to say. This depends on whether he has other income.

The fact is: If he were to retire this year, 82 percent of his pension would be taxed (84 percent in 2024), and his tax-free allowance would be 18 percent. This rate applies for the entire pension period. The basic tax allowance must also be taken into account. This year it is 9984 Euro. If the pension is less than this (this applies from approx. 1180 euros monthly pension) and one has no other income, then no taxes are due.

How much tax pensioners have to pay

However, pension adjustments could mean that taxes will have to be paid at some point after all. In addition to the tax, Peter K. Pay health insurance contributions even as a pensioner. But there are subsidies for this:

Members of the pensioners’ health and long-term care insurance receive half of their contribution of 14.6 percent (i.e. 7.3 percent) and half of the additional contribution required by the fund (between 0.5 and 1.5 percent). The contribution to the nursing care insurance fund (3.05 percent) must be paid in full by each pensioner. In total, 11.5 to 12 percent will be deducted from the pension.

Peter K.s conclusion after the interview: "I’m glad to have clarity now! I get along quite well in old age. Many people have to work longer and harder, earn far less, and can hardly make private provisions. And get far less pension*. This is actually not fair."

The checklist for the application for the old-age pension:

The pension does not come automatically when you reach retirement age. You have to apply for it. If possible three months before the start. A personal interview is not absolutely necessary for this. One can also make the application online from home. Time required: about 45 minutes.

For the application one needs among other things:

  • Pension insurance number
  • Identity card/passport
  • Birth certificate (copy of family record book)
  • Tax identification number
  • Account number
  • insurance number
  • Name and address of the employer
  • Proof of vocational training (e.g. apprenticeship contract, journeyman’s certificate, etc.).)
  • Birth certificates of the children
  • Name and address of health insurance company
  • If you receive social benefits (sickness benefit, unemployment benefit, unemployment benefit II, social assistance/housing benefit), the details of the paying agency (file number)
  • Documents for the periods in the insurance history that are still unclear
  • Proof of military or civilian service

For more information, call the free service number of the German Pension Insurance: 0800-1000-4800 (Monday to Thursday: 7 a.m.).30 to 19.30, Friday until 15.30 h).

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