Germans predict sharp drop in retirement income

Half of Germans expect to live on less than half their working income once they retire, and about one fifth expect to have less than 30% of their current earnings each year, according to a study by asset manager Union Investment.

The study, of 500 financial decision makers in German households, shows how even citizens of Europe’s most affluent country expect their living standards to be significantly worse in retirement.

Additionally, it comes at a time EU proposals around pensions and Solvency II threaten to push retirement funds more towards ‘safe’ fixed income assets with negligible yields.

The expectation of living on less than half one’s working income is realistic, in that Germans receiving the public pension received, on average, 43% of their previous salary, according to research from the University of Freiburg.

But it takes 60% of previous earnings to maintain a stable standard of living in retirement, Union Investment noted.

More than two thirds of respondents (69%) to Union’s study in January/February see it is necessary to save for one’s own retirement, with respondents aged between 20 and 29 realising this even more strongly (74%).

Wolfram Erling, head of pension provision at Union Investment, said: “It is very welcome that the topic of retirement planning has become anchored in the consciousness, especially of younger people.”

More than 80% of respondents said they put aside more than €100 per month.

Some 42% use the state-subsidised ‘Riester-Rente’, while the rest of those saving use other structures.

Some 63% use self-owned real estate as their pension, while 39% use a savings account.

But Erling warned this method should not be the first choice, because it is primarily for parking short-term cash – with a commensurately low rate of return, which is easily eroded by inflation.

Using investment funds was mentioned as a method of saving by 37% of respondents.

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