Private retirement provision sounds fair, but the real business often only does only those who grow very old. A simple calculation shows whether your private pension is worthwhile.
Many people pay for their private pension insurance for decades and trust them to secure their standard of living in retirement. In the end, you have a lifelong pension, which is calculated according to complicated formulas and the pension factor.
But how many years do you actually have to live so that your private pension insurance pays back more than you have paid? Or in other words: when is a private pension insurance really worth?
If you want to find out whether your private pension insurance is worthwhile, you have to know the following simple bill. In essence, the question is about how many years someone has to pay pension so that he can at least get his saved capital.
Suppose, at the end of the savings time you have 100,000 euros in saved capital. The so -called pension factor determines how much monthly pension the insurance company pays for 10,000 euros. If the pension factor is 30, the insurance company pays 300 euros per month for this 100,000 euros credit. Everything you should know about the pension factor can read here.
If you share the capital saved by the annual pension, it quickly becomes clear how long you would have to live so that the contract pays off.
- Determine capital: How much did you save in total? For example: 100,000 euros.
- Calculate monthly pension: This depends on Pension factor away. Example: pension factor = 30. That means you get 30 euros per month pension per 10,000 euros capital. At 100,000 euros that would be: 100,000 divided by 10,000 = 10. 10 × 30 euros = 300 euros pension per month.
- Calculate annual pension: 300 euros × 12 months = 3,600 euros annual pension.
- Calculate break-even age: Your paid capital divided by the annual pension shows you how many years you have to pay pension to get your capital back: 100,000 divided by 3,600 = 27.78 years
Means: With a pension of 3,600 euros a year (300 euros per month), it takes about 27.8 years for the 100,000 euros to be paid out completely. If you retire at the age of 67, you would have to be 95 years old to get out of zero. Only beyond that is a real profit. With a lower pension factor (for example 20), this time is significantly extended.
In terms of profitability, however, the above invoice, taking into account possible interest and surpluses, is only an estimate. Because the 100,000 euros that are in the end in the end do not have to correspond to the amount that they have actually paid for many years.
This means that if you have paid less, you don’t necessarily have to get as old as the pure capital backflow calculation suggests. The higher the surpluses generated, the faster the contract is worth – at least purely mathematically.
The 100,000 euros of credit in their contract mostly consists of:
- own deposits (approximately monthly contributions over many years),
- as well as Interest charges or Excess participants (depending on the contract, guaranteed interest etc.).
So if you want a realistic assessment whether the insurance pays off, you must compare:
- How much do I have overall actually deposited?
- How much do I get out of pension overall (probably)?
- Determine capital: How much did you actually pay? For example: 60,000 euros – although the contract credit is 100,000 euros at the start of the pension.
- Calculate monthly pension: Example: pension factor = 30. That means you get 30 euros per month pension per 10,000 euros capital. At 100,000 euros that would be: 100,000 divided by 10,000 = 10. 10 × 30 euros = 300 euros pension per month.
- Calculate annual pension: 300 euros × 12 months = 3,600 euros annual pension.
- Calculate break-even age: Your paid capital divided by the annual pension: 60,000 divided by 3,600 = 16.67 years.
Means: In this calculation adapted to the real conditions, you have just out your own deposits after almost 17 years. Everything you receive is real profit: interest, surpluses or simply a plus from the longevity risk that the insurance company carries for you.
Both the first and the second example calculation is based on simple mathematical rules and says something about whether a private pension insurance pays off, but not whether it is really worth it. “I am worth it” is always a question of perspective and the answer can therefore be very different.
lens It is worth private pension insurance if the insured person withdraws at least the capital that is in the contract at the end of the savings phase. As the above examples show, you would have to pay a pension with a saved credit of 100,000 euros until this sum is paid out by the monthly pension payments. In terms of mathematical, the balance sheet is compensated for – neither profit nor loss.
Economically The insurance company is only worthwhile if it drops a return beyond the pure capital repayment. Here the comparison counts with other forms of savings or investments. Anyone who has paid less into the insurance than at the end will benefit from interest and surpluses. But even then it may be that other forms of investment have achieved a better return.
- Would you have built up more capital elsewhere with the same contributions elsewhere (such as an ETF savings plan)?
- Would you have had higher earnings or less costs in another investment form?
Economically, private pension insurance is worthwhile if it brings more than alternative investments at a comparable risk.
And then there is a third perspective.
Subjective Private pension insurance can already be worthwhile, even though it is objectively or economically tend to grow. Some people appreciate the security of getting a guaranteed pension for life – even if they may not “survive” all of their capital. The contract may be worthwhile for you because it conveys a good feeling and creates financial planning in old age. Others attach great importance to the fact that the insurance company secures survivors, even if they have to accept cuts in the return.
