When can I retire?

State and financial retirement

“Retiring” can mean two things: drawing the statutory pension, or stopping work because your own wealth carries you. The two do not have to coincide.

The regular retirement age in Germany is 67 for everyone born in 1964 or later, and between 65 and 67 for older cohorts. With 35 years of insurance, the pension for long-term insured people is possible from 63, but with a deduction of 0.3 % for every month before the regular age, up to 14.4 %, and permanently. With 45 years, people born in 1964 or later can retire at 65 without deductions.

Financial retirement starts as soon as your wealth can bridge the years until the state pension and then close the gap between pension and spending. If you stop earlier, you pay into the pension system for fewer years. Your later state pension then turns out lower than the projection in your pension statement, which assumes steady contributions until the regular age.

The four numbers that matter

1. Spending in retirement. Not your income today, but what you will spend then, in today’s euros. Items that are easy to forget: health insurance, upkeep of a house or flat, replacing a car and appliances, travel in the first years.
2. Income in retirement. State pension per your statement, company pension, private pensions such as Rürup and, for rental property, the cash flow after debt service, not the cold rent.
3. Liquid wealth. Portfolio, savings, cash: everything you can sell and withdraw. Your own home does not count here. It saves rent, but brings in no money as long as you live in it.
4. Time. The years until you stop, in which you save and your wealth grows, and the years after that it has to last. Stop at 55 and plan to 95, and you need 40 years of reach.

How much wealth you need: the rule of thumb

Work out your monthly gap: spending minus pension minus other income. Times twelve, that is your yearly withdrawal. The wealth you need is that withdrawal divided by the withdrawal rate: 25 times at 4 %, about 29 times at 3.5 % and 33 times at 3 %.

The 4 % comes from US studies (Bengen 1994, the Trinity study 1998): withdrawing 4 % in the first year and raising the amount with inflation every year lasted 30 years with historical returns in almost all cases. For a retirement of 35 or 40 years, and with tax on gains, the rate that works just as often is lower. That is why many planners in Germany use 3 to 3.5 %.

The rule of thumb has one weakness: it pretends the gap starts on day one and never changes. Stop at 58, and you withdraw your full spending until 67 and only the gap afterwards. That is exactly what the calculator works through, year by year.

Why an average return misleads

Two investors start with €500,000 each, withdraw €20,000 a year (4 %) and see the same returns: 29 years at 6 % and one year at −25 %. The only difference is when the crash comes.

Same average return, almost twice the wealth at the end. A crash at the start hits wealth that is being withdrawn from at the same time; units sold are missing for the recovery. This is called sequence-of-returns risk. A calculator with a fixed average return cannot show it; a Monte Carlo simulation can: it draws a random return for every year and repeats that thousands of times.

How the calculator works

• 2,000 paths per input, each year with a random return. The random numbers are fixed, so the same inputs always give the same result.
• Real, in today’s euros: returns and spending are adjusted for inflation. A 6 % return at 2 % inflation is just under 4 % real growth.
• Volatility: yearly returns scatter with the given standard deviation. 15 % roughly matches a broadly diversified equity ETF; a mixed portfolio with bonds swings less, but usually earns less too.
• Until you stop, wealth grows and the saving is added every year. After that, each year withdraws what pension and other income do not cover, with the state pension from the age you set.
• Success means the wealth never runs out before the planning age. The bars show that share for every retirement age, the fan how far the paths spread.

Which probability is “enough” is a personal question. 85 % does not mean it fails in 15 % of cases, but that in those paths you would have to adjust at some point, for example by spending less. The more flexible your spending, the lower the number can be.

Levers, if it is not enough yet

The calculator shows how strongly each lever works. The most important ones, soberly:

• Stop later. Every extra year works three times: one more year of saving, one less year of withdrawing and a higher state pension.
• Spend less. €300 less a month is €3,600 a year; at a 3.5 % withdrawal rate that means about €100,000 less wealth needed.
• A transition, not a cut. Part-time work or a small income in the first years shortens the time your wealth carries you alone. Because of sequence risk, the first years count double.
• Flexible withdrawals. Withdrawing less for a while after bad market years raises the probability of success markedly, without spending much less on average.
• Income that stays. A rental flat whose loan is paid off before retirement then delivers rent without debt service. Whether that pays off depends on the case; the comparison own home, buy-to-let or ETFs shows which assumptions tip the balance.

What the calculator doesn’t know

A calculator on a website has to simplify. It does not include:

• Tax on gains when withdrawing and on pensions. For equity ETFs in Germany only the gain is taxed, with the partial exemption at an effective rate of about 18.5 %; the saver’s allowance of €1,000 a year (couples €2,000) stays tax-free.
• Health insurance in early retirement, often one of the largest items. If you are voluntarily insured in public health insurance before your pension, you also pay contributions on capital gains and rent (more in the FAQ).
• One-off events such as larger purchases, inheritances, care costs or selling a house.
• Your properties in detail: fixed rates that end, loans that run out, rents that rise.

That is exactly what Wertavo is built for: it plans retirement with your real wealth, your loans and your rents, year by year, and shows how every number comes about.