Retirement at 45 years of service: Don't recklessly distribute funds! - A brief departure from a 45-year long career: hold on to your hard-earned wealth!
In Germany, those who have contributed to the Pension Insurance for 45 years or more have the option to retire earlier without the usual age-related penalties or reductions to their pension benefits. This early retirement option, known as the "old-age pension for particularly long-insured individuals," offers a significant advantage for those eligible.
### Eligibility and Pension Amount
Anyone who has 45 years of insurance coverage can retire earlier without deductions. This means that pensioners can preserve their full pension benefits, often with additional credits for the long contribution period. The German Pension Insurance provides information on eligibility for early retirement for "particularly long-insured individuals."
### Taxation Impact
Taxation of pensions in Germany is progressive and increasing over time. For example, pensioners who retired in 2005 paid taxes on only 50% of their pension, but for those retiring in 2025, about 83.5% of their pension income is taxable. All pensions (state and private) are subject to income tax under a progressive tax system, with tax-free thresholds and rates from 14% up to 45% depending on income level. It is important to note that early retirement typically means starting pension income earlier, which influences tax timing and potentially the tax bracket if other income is involved.
### Additional Pension Credits
Germany grants additional pension credits for long periods of contributions, such as those with 45 years of pension service. These credits are used to calculate the pension amount and can increase monthly payments. Taking the early retirement option with 45 years service means that pensioners often avoid the usual early retirement deductions (typically 0.3% reduction per month if retiring before the standard age), thus preserving higher pension entitlements.
### Key Points
- The early retirement option with 45 years of pension service in Germany allows pensioners to retire before the standard age without penalty due to long-term contributions. - This option preserves full pension benefits, often with additional credits for the long contribution period. - The taxable portion of the pension depends on the calendar year of retirement, with about 83.5% taxable for those retiring in 2025. - Standard tax allowances apply, with the amount exceeding the threshold being taxable. - Around a third of those who retire due to age choose this early retirement option. - The supplementary earnings limit for early retirees has been abolished since 2023. - It is unclear whether the tax-free allowance also applies to the deduction-free early retirement. - Continuing to work after early retirement will result in the same old-age pension as waiting until the regular retirement age, but with higher tax rates due to the progression of taxes and social security contributions. - The new government coalition does not seem to intend to close the legal loophole regarding this early retirement option.
- The amount of the pension for those retiring early with 45 years of service in Germany is calculated based on the contributions made over this prolonged period, thus potentially resulting in higher pension entitlements.
- Given the significant advantage of preserving full pension benefits with additional credits for the long contribution period, managing personal-finance becomes crucial when deciding to take the early retirement option with 45 years of pension service in Germany.
