Making Bank in Retirement: Around 1600 Euro Pension Plus Job - "Never Earned So Much!"
- By Doris Schneyink
- Approx Reading Time: 5 Min
Generous Retirement Benefit and Employment: "I've Never Earned This Much" - Job Resume Details - Generous pension and work income: "Individual revels in pocketing 1600 euros on a regular basis, stating they've never made this much money before."
Traditionally, the German rule was simple: if you've got a job, you don't receive a pension. The rationale behind this was that a pension served as a safety net for individuals who could no longer work due to age. Although it was permissible to continue working post-retirement, the earned income was offset against the pension - meaning it was reduced, and there were only limited allowances.
However, starting January 1, 2023, that all changed. The earnings limits for old-age pensions have been eliminated. Now, folks can earn a salary along with their pension without any reductions.
This transformation carries significant consequences, especially for the early retirement pension from age 63. Those seeking this pension, i.e., wanting to receive a pension before the standard age, must still accept legal reductions. But, if they choose to continue working after, these benefits will no longer be reduced due to additional income. This makes early retirement much more tempting for many.
Statistical data from German pension insurance reveals that around 116,000 people took advantage of this fresh option in 2023. The intention behind such policy is to encourage skilled workers to remain in their jobs for longer. But is this objective likely to be achieved? Or will there be free-riding effects, with people taking advantage who had no intention of exiting the workforce early? Two baby boomers share their experiences in stern.
Matthias, 64, Key Account Manager
The wagon wheel turned offshore in Holland. Four of us were gripping about everything under the sun, including pensions. We were all around the same age, baby boomers ranging between 60 and 65.
One of our mates, Michael, revealed he was planning to go for early retirement in the near future but intended to keep his day job, and yet his pension would escape any reductions. I'd heard whispers about this option, but Michael was the first in our circle of pals to make use of it. He works as a top-tier engineer for a prominent corporation. He loves his job and has no qualms about sticking it out until the standard retirement age of 67.
However, since 2023, there's now this option to bag an income and pension simultaneously without the pension getting docked. The authorities may have established this incentive to deter well-qualified professionals from leaving the workforce early. But Michael had never planned to quit early, and neither did I.
But I thought, if it works for Michael, I can do it too. That was in September last year, just after my 64th birthday. I applied for early retirement online, which took around half an hour. The only requirement is that you've been employed continually for at least 35 years between 18-63.
In early October, I had a query and gave the hotline a call. A caseworker called back immediately and said my file was already processed, and my question was moot. I thought, this can't be German bureaucracy - something's definitely off here.
Just four weeks later, on October 10, I received my pension ID and my first old-age benefits were paid out. 1300 euros, even retroactively for September. No other bureaucratic application of mine has ever been processed this quickly.
1300 Euro in pension are not much. I didn't earn big bucks in my younger years, and if you apply before reaching the standard retirement age, there are steep deductions. But I keep working full-time and now earn significantly more. My annual salary hovers around 120,000 euros. I still contribute to pension from that.
The 1300 Euro I receive monthly from the pension office, I stash away completely, invest it, and when I reach my standard retirement age at 66 years and 4 months and finally say sayonara, I'll boost the currently meager benefits. I also used to save 600 euros a month earlier, but I can now raise this savings amount to over 2000 euros. That's terrific.
On the flip side, I'm a bit taken aback. Suddenly, I find myself enjoying my twilight years. I ponder, where's the advantage for the pension insurance and the state?
Rainer, 65, Kindergarten Teacher
I had my initial pension consultation at the age of 60 and was gobsmacked. After taxes, health, and long-term care insurance deductions, I was left with around 1700 euros net from my pension. That would only be possible if I held out until the standard retirement age. Mine is at 66 years and 2 months. That was truly terrifying. Following 40 years as a kindergarten teacher, I'd get so little pension. The pension consultant advised me to build assets if possible in the coming years. I thought, splendid, but how? At that time, I earned around 2600 euros net in full-time employment following 40 years of dedicated service and finally in the highest possible pay grade. I could live happily on that, but it didn't leave much for asset building.
Moreover, I was aware that it would be pretty difficult to keep my job until the end. I adore my job, working with kids offers boundless joy. However, teaching at a kindergarten means endless stress. My adrenaline level surges as soon as I set foot there and doesn't drop until the final child leaves. I often have to fill in for others due to the high sick leave rate among kindergarten teachers, meaning I frequently work alone with a group of 15 children and maybe a trainee. The occupation is both mentally and physically demanding: I was in my mid-50s when a five-year-old darted away from me for the first time, he was just faster than me. I also couldn't sit on the floor for as long anymore. I found the noise level increasingly stressful, and dealing with countless emergencies didn't get any simpler. Eventually, I decided to switch within the company from the kindergarten to the outpatient care of mentally ill people. I reduced my hours from 39 to 30, allowing for improved quality of life, but it meant that I paid less into the pension fund, diminishing my retirement provision.
I've been a works council member in our company for many years. In early 2023, a colleague questioned if the new regulation would be worthwhile for her - retiring at 63 and carrying on working.
I hadn't delved into this subject before then. So I researched it, and I couldn't believe it: the regulation grants you the chance to rethink your final working years and offers a fresh perspective.
I have calculated the costs painstakingly for my personal situation and applied for early retirement in September 2023. With deductions, I now receive 1600 euros net per month. Concurrently, I keep working part-time, 24 hours a week, earning 2000 euros net. In total, this amounts to 3600 euros net per month - more than I've ever earned in my life.
I lead a modest lifestyle with the additional income. Instead, I use it to build a financial cushion. By the time I reach my regular retirement age in September 2025, I shall have saved around 30,000 euros. This will enable me to augment my pitiful pension or cover unexpected expenses, like car repairs or home maintenance. I find this arrangement fair: my employer retains a skilled worker longer, and I can afford to work part-time in my final years, building a financial safety net, just as my pension advisor had suggested.
- Retirement
- Early retirement
- Retirement planning
- Baby boomer
Enrichment Data:
Overall: This direct abolition of income limits for early old-age pensions is currently not a prominent policy discussion in Germany. However, to delve into the broader query of how relaxed income or pension rules (e.g., removal of earning limits) might impact early retirement and workforce motivation among baby boomers, the following implications can be inferred from current policy trends and economic literature:
Potential Implications for Early Retirement
- Increased Early Retirement Enrollment: With income limits for old-age pensions being abolished or expanded, baby boomers who wish to retire early but still draw significant income may be more prone to do so. This could decrease perceived barriers to early retirement, leading to a higher proportion of older workers leaving the workforce earlier than under strict rules.
- Reduced Financial Penalty: Currently, specific early retirement plans in Germany often feature earnings caps or reduction factors if pension payments are taken before the standard retirement age. Relaxing or removing these limits could eliminate financial disincentives for early retirement, rendering it a much more appealing option.
Implications for Workforce Motivation
- Mixed Effects on Motivation: For some baby boomers, the prospect of being able to access pensions without strict income limits may decrease motivation to continue working, especially if they have alternative income sources or crave more leisure time.
- Contrasting Effects: Conversely, for those who value the social aspects of work or wish to remain active, the option to retire early with fewer barriers may not necessarily diminish motivation if they choose to continue working for non-financial factors.
- Possibility of Phased Retirement: Abolishing income limits could facilitate phased retirement models, where older workers transition gradually from full-time work to full retirement by combining part-time work and partial pension benefits. This could keep some baby boomers engaged in the workforce longer, yet on their terms.
Broader Context: Current German Pension and Labor Policy
Recent German coalition agreements focus on enhancing industrial competitiveness, supporting entrepreneurs, and modifying the "debt brake" to allow more public investment[2][5]. Pension policies are being reformed to ensure sustainability and to improve financial literacy among citizens[1][4]. These changes may indirectly affect retirement behavior by altering economic incentives and the perceived security of pension systems.
Summary Table
| Policy Change | Effect on Early Retirement | Effect on Workforce Motivation ||--------------|---------------------------|-------------------------------------|| Abolish income limits for pensions | More baby boomers may retire early | May decrease motivation for some; mixed effects, since some might prefer phased retirement options|| Maintain strict limits | Fewer early retirees | May encourage older people to work longer due to disincentives, yet could create dissatisfaction |
Conclusion
If Germany were to eliminate income limits for old-age pensions, this could make early retirement more attractive and accessible to baby boomers, potentially reducing workforce participation among this group. However, the actual impact on motivation would likely be mixed, as some would opt for early retirement, while others might be motivated to remain in paid or voluntary work if phased retirement options are available. Current policy trends do not indicate a complete abolition of income limits, but ongoing reforms could influence these dynamics in the future[2][5].
- In Matthias' case, the change in community policy that abolished income limits for old-age pensions allowed him to retire early and continue working, resulting in a higher overall income than before, with a net salary of 120,000 Euros and a personal-finance boost from his pension of over 2000 Euros per month.
- Rainer, a baby boomer kindergarten teacher, took advantage of the relaxed pension rules to retire early while still working part-time, earning a net income of 3600 Euros per month and building a financial cushion for his later years, which he plans to use for augmenting his pension or covering unexpected expenses.
