Early retirement without deductions: How to secure your financial freedom!

Early retirement without deductions: How to secure your financial freedom!

With the regulation in force since 2012, anyone who has paid into the pension fund for 45 years can retire without deductions. This option is maintained by the black-red government coalition, which is of great importance for many insured people. However, early retirement can only be applied for two years before the regular retirement age. Stern reports that around one in three people who retire regularly chooses to use this option.

Although the possibility of retiring early may seem tempting, those insured should be aware of the financial implications. Retiring from work early can result in two years less being paid into the pension fund, which can ultimately lead to a loss of pension. Average earners would have to expect around 80 euros less in pension per month if they take this step.

Early retirement and job opportunities

Fortunately, people who receive early retirement do not have to forego further employment. You can continue to work and receive both a salary and a pension. The additional earnings limit, which was still at 46,060 euros in 2022, was completely lifted on January 1, 2023. This means that early retirees are free to continue working normally and pay into the pension fund.

One point to keep in mind is that with higher income resulting from the combination of early retirement and salary, a higher tax rate also applies. The coalition is currently planning for 2,000 euros to remain tax-free, but it remains unclear whether this regulation also applies to the tax-free early pension.

Requirements for old-age pension

The German Pension Insurance provides comprehensive information about the requirements that apply to a retirement pension for those who have been insured for a particularly long time. Proof of 45 years of insurance must be provided, although not each of these years has to be documented by employment. Periods spent raising children, caring periods and military or community service are also considered eligible.

Clearly defined regulations enable different groups to realize their pension rights. For example, insured people born between 1949 and 1963 can retire before their 67th birthday without any deductions. However, for later-born cohorts, the retirement age includes deductions of up to 14.4% for those who wish to retire early, requiring careful planning.

If you are considering the possibility of early retirement, you should apply for it no later than three months before you want to start your pension. Comprehensive advice from the German pension insurance company is also recommended in order to weigh up all options and potential risks. You can find out more about this here.