Long-Term Employee Retires After 45 Years: Be Wary of Handing Out Money

Work Retirement at 45 Years: Don't Squander Your Earnings! - Retirement at age 45 from a 45-year career: Don't squander your hard-earned wealth!

The German government has introduced a new regulation that allows individuals with 45 years of pension insurance to retire early without any deductions, up to two years before the regular retirement age. This move is aimed at providing more financial freedom to those who wish to retire early.

Under this new rule, those who do not apply for early retirement are giving up a significant amount of money. For instance, after two years of work plus early retirement, one would receive the same old-age pension as if one had waited until the normal retirement age.

However, it's important to note that this regulation does not consider the removal of income control for early retirees. This means that those who continue working while receiving their pension may face a higher tax rate on their additional income due to the progression of taxes.

The current government coalition also allows for a tax-independent retirement option for people insured for a particularly long time. This option, known as the "old-age pension for particularly long-insured persons," is available to anyone who has 45 years of insurance coverage. About a third of those who retire regularly due to age choose this option, but most stop working in their old job.

It's worth mentioning that working for 45 years is not necessarily required to have the required 45 years of pension insurance. Time spent in private care of relatives, raising children, and military or alternative service also count as additional pension years.

The black-red government coalition has decided that deduction-free early retirement after 45 years of insurance coverage will remain. However, it's still unclear whether this tax-free allowance also applies to deduction-free early retirement. The limit on additional earnings for early retirees has been abolished since 2023, allowing individuals to continue working and paying into the statutory pension insurance.

Terminating employment contracts could be considered age discrimination for early retirees. Therefore, some employment contracts automatically end with retirement, but this does not apply to those who voluntarily go into early retirement.

The German pension insurance informs individuals if they have earned enough pension years to apply for the old-age pension for "particularly long-insured persons." Those who receive a pension and continue to work have significantly more income and pay a higher tax rate. Singles can have deductions of around 40% from their additional income.

However, even with deduction-free early retirement, there is still a loss, as someone who stops two years earlier pays two years less into the pension fund. The coalition wants to mitigate this by making 2000 euros tax-free (see active pension).

In conclusion, the new regulation for deduction-free early retirement in Germany offers a significant financial advantage for those who have 45 years of pension insurance. However, it's crucial to consider the implications of early retirement, such as the progression of taxes and the potential loss of pension contributions.