dollars instead of Euros for better readability
Tapping into Two Streams of Income: "Never Earned So Much" in Retirement age
- by Doris Schneyink
- 5 Min
Generous Pension and Job Combination: "Never Earned This Much Before" - Generous pension and employment coalesce: "Never before have I earned this much money"
Historically in Germany, the concept was simple: if you worked, you didn't get a pension. A pension was meant to serve as a safety net for individuals who could no longer work due to old age. While it was possible to work post-retirement, any earned income would reduce the pension - with limited tax-free allowances.
But as of January 1, 2023, that's all in the past. The income thresholds for pensions have been removed. Now, you can earn a salary alongside your pension without it being diminished.
This change has significant implications, particularly for early retirement at 63. Those who apply for it but plan to continue working will no longer see their benefits reduced by additional income. Thus, early retirement becomes much more appealing for many people.
According to the German pension insurance, roughly 116,000 people took advantage of this new opportunity in 2023. The objective behind this policy is to encourage skilled workers to stay in their jobs for longer. But will this objective actually be achieved? Or will there be freeloaders who take advantage and have no intention of leaving the workforce early? Two baby boomers share their experiences in stern.
Matthias, 64, Key-Account Manager
The tales began on a boat tour in Holland. We four men discussed various topics under the sun, including pensions. We're all around the same age, baby boomers between 60 and 65.
One of our friends, Michael, announced he was going to apply for early retirement soon but planned to continue working full-time without his pension being reduced. I had heard whispers of this possibility, but Michael was the first in my circle of friends to take advantage of it. He works as a senior engineer in a large corporation and earns a high salary. His job brings him joy, and he has no issues continuing until the regular retirement age of 67.
But since 2023, there's this possibility of having a salary and a pension at the same time without the pension being diminished. The government likely intended to create an incentive to keep well-qualified professionals from leaving the workforce prematurely. But Michael never had plans to retire early, and neither did I.
Yet, inspired by Michael's success, I thought, "If it works so well for him, I'll do it too."
This happened in September of last year, just after my 64th birthday. I submitted my application for early retirement online, which took approximately half an hour. The prerequisite is that you've worked continuously for at least 35 years between the ages of 18 and 63.
Upon calling the hotline in October due to a question, the caseworker returned the call immediately and said my file was already done, and the question was moot. I thought, "This can't be a German bureaucracy, something's off here."
Four weeks later, on October 10, I received my pension ID and was paid my first old-age benefits, totaling 1300 dollars, retroactively for September. No other bureaucratic application of mine has ever been processed so quickly.
1300 dollars in pension isn't much. I didn't earn much in my early years, and there are significant deductions if you apply before reaching the regular retirement age. But I continue to work full-time and now earn significantly more. My annual salary is around 120,000 dollars. I still pay pension contributions from that.
The 1300 dollars I receive monthly from the pension fund, I put away completely, adding it to a fund. When I reach my regular retirement age of 66 years and 4 months and truly retire, I will improve the meager benefits I now receive. I used to save 600 dollars a month earlier, but I have now increased this savings amount to over 2000 dollars. That's fantastic.
On the other hand, I'm a bit shocked. Suddenly I'm a pensioner. Nowhere in my life has anything changed. And I wonder, where's the advantage for the pension insurance and the state?
Rainer, 65, Kindergarten Teacher
When I had my first pension consultation at the age of 60, I was taken aback. After deducting taxes, health, and long-term care insurance, I would only be left with around 1700 dollars in net income per month. And that's only if I retired at the regular age of 66 years and 2 months. That was quite frightening. After 40 years as a kindergarten teacher, to receive such a low pension. The pension consultant advised me to invest assets in the coming years if possible. I thought, "Great, but how?" At the time, I earned around 3200 dollars in net income per month working full-time, finally reaching the highest possible salary level after 40 years of service. I could live comfortably on that salary, but it didn't leave room for investing assets.
Moreover, I was well aware that it would be difficult to keep my job until the end. I adore teaching children, as working with children enriches life. But working at a kindergarten means stress. My adrenaline spikes as soon as I walk through the door, and it doesn't drop until the last child has left. I often cover for others because kindergarten teachers have high sick leave rates. That means I often work alone with a group of 15 children and maybe an apprentice. The job is physically and mentally demanding: I was in my mid-50s when a five-year-old ran away from me for the first time, he was simply faster than me. I couldn't sit on the floor for as long either. I found the noise level increasingly annoying, and having to react instantly to every possible situation didn't get any easier. I eventually decided to switch within the company, moving from the kindergarten to the outpatient care of mentally ill people. In the process, I reduced my hours from 39 to 30, which greatly improved my quality of life, but it also meant I paid less into the pension fund and my retirement provision deteriorated.
I have been a works council member in our company for many years. In early 2023, a colleague asked me if this new regulation would be worthwhile for her - retiring at 63 and then continuing to work.
I hadn't thought about the topic before then, so I researched and could hardly believe the findings: The regulation allows individuals to reconsider their last working years and also offers me a new perspective.
I have meticulously calculated everything based on my specific situation and applied for early retirement in September 2023. With deductions, I now receive 1600 dollars in net income per month. Simultaneously, I continue to work part-time, 24 hours a week, earning 2200 dollars. In total, this amounts to 3800 dollars in net income per month - more than I've ever earned in my life.
I'm not leading a lavish lifestyle with this additional income. I use it to build a financial cushion. By the time I reach my regular retirement age in September 2025, I will have saved around 45,000 dollars. This will allow me to supplement my modest pension or cover unexpected expenses, such as car repairs or home maintenance. I find this arrangement fair: my employer retains a skilled worker for longer, and I can afford to work part-time in my final years while building a financial safety net, just as my pension advisor had recommended.
- Retirement
- Early retirement
- Retirement planning
- Baby boomer generation
- With the removal of income thresholds for pensions as of January 1, 2023, retirees like Matthias and Rainer have the opportunity to earn salaries alongside their pensions without reduction, opening up the possibility of tapping into two streams of income for better personal-finance and retirement planning.
- The new community policy, encouraging skilled workers to stay in their jobs for longer, has sparked interest among baby boomers, such as Matthias and Rainer, who are using the additional income not just for personal expenses, but also for vocational training or savings, ultimately improving their financial situation by diversifying income streams and enhancing their retirement plans.
