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Prepare for the second half of life: Optimal retirement planning from age 40

At 40, you still have about 25 years to accumulate savings for retirement. Although starting to save early is recommended, it's never too late to plan efficiently, choose the right financial products, and consistently monitor your retirement savings. Here you'll learn how to prepare for the second half of your life and find the best retirement plan for those over 40.

Why is additional retirement provision necessary?

Most people pay into the statutory pension insurance scheme and expect to receive their regular retirement pension at around age 67. However, those who want to enjoy financial independence in old age should not rely solely on state benefits. Even now, the standard pension is less than 50 percent of the average income.

Can you get by on 46 percent of your income?

To avoid relying on inadequate state benefits and to look to the future with confidence, private retirement planning is essential. There are numerous ways to build up a substantial financial cushion for retirement. Even if you're already in your 40s and in the second half of life, it's not too late. You can still save enough capital to ensure you don't have to go without anything in your retirement. Our BKC advisors are ready to show you how. Get in touch!

What to consider when choosing retirement savings from age 40 onwards

Even in the second half of life, there is no one-size-fits-all recommendation for optimal retirement planning after age 40. Choosing the right product depends on individual circumstances, goals, and financial resources. The following aspects should be considered before making a decision:

Savings potential per month
Amount of the pension gap in retirement
Target retirement age
Existing savings product or assets
Employment status (self-employed or employed)
Family situation (number and age of children)
Risk appetite for potential return or preference for security

It is important to determine how much money can be saved monthly and how much capital needs to be accumulated by retirement age. The planned retirement age also influences the required amount.

Existing assets, including real estate, should also be taken into account. Homeowners have no rent payments in old age and can generate rental income, which reduces the pension gap.

Tip: To maintain your standard of living in retirement, your pension should be at least 80 percent, ideally 100 percent, of your net income as an employed person.

Retirement planning from age 40: Options at a glance

Even at 40, various retirement savings products are available. The decision can be based on security-oriented products, government-subsidized options, or capital market investments. Suitable forms of retirement savings from age 40 onwards include:

Riester pension
Rürup pension
Occupational pension scheme
Savings plans for funds and ETFs
Private pension insurance

Riester and Rürup pensions are government-subsidized options. While Riester is particularly suitable for families with children and low-income earners, self-employed individuals and higher earners benefit from the Rürup pension. Both offer tax advantages, but also limitations such as a lack of flexibility and full taxation upon payout.

State-subsidized retirement savings: Riester and Rürup pensions compared

Riester and Rürup pensions are both part of the state-subsidized retirement provision, but with different target groups and advantages:

The Riester pension is particularly advantageous for families with children, low-income earners, and potentially high-income earners. The government supports Riester savers by increasing their contributions. Anyone saving four percent of their previous year's income receives a basic allowance of €175 per year. In addition, policyholders receive €300 per child eligible for child benefit (€185 for children born before 2008). Low-income earners can receive the full allowances with a small personal contribution. For example, a policyholder with three children born in 2008 or later can receive a total of €1,075 in government allowances per year.
The Rürup pension, on the other hand, primarily benefits the self-employed and high earners. The incentives come in the form of tax advantages during the savings phase. Contributions to the Rürup pension are 100% tax-deductible, making this product attractive for high earners and the self-employed who want to reduce their tax burden.

However, it should be noted that both the Riester and Rürup pensions have some disadvantages. They are often inflexible and are fully taxable upon payout.

Company pension scheme: Building wealth with employer support

Occupational pension schemes (bAV) are of interest to employees. By taking out a bAV, the pension contribution is deducted directly from the gross salary, leading to a reduction in taxes and social security contributions. This results in a lower actual net burden compared to the contribution paid in.

A company pension plan is particularly attractive when the employer participates. Employer support in saving can create a solid financial cushion for retirement. However, if the employer does not contribute to the company pension plan, it may not be the best option. Converting salary into contributions also reduces the contribution to the statutory pension scheme, which in turn lowers the pension entitlements.

Since 2019, employers have been required to provide a subsidy of 15 percent, as they also save on social security contributions through company pension schemes.

Private pension insurance: Flexible retirement planning: Private pension insurance policies are offered in various forms. There are interest-bearing products with a high degree of security and guarantees, but these offer only low returns due to the persistently low interest rate environment. However, when signing the contract, you know exactly what minimum pension to expect.

With unit-linked pension insurance, the capital is invested in investment funds, which offers the potential for higher returns. Unit-linked pension insurance is particularly recommended for long investment horizons of ten, 15, 20, or 25 years. While there are few to no guaranteed returns, the capital can be invested as profitably as possible.

It is important to ensure broad risk diversification when selecting funds in order to minimize losses.

Private pension plans are not subsidized by the government. During retirement, only the income portion (the difference between contributions paid in and payout) is taxed. These products are extremely flexible: you can adjust the savings rates, freely choose the term, and, if necessary, make partial withdrawals.

Our tip: Fund and ETF savings plans are particularly interesting for retirement planning from age 40 onwards. These are ideal for those who still have at least ten years to save.

With an ETF savings plan, you pay a fixed amount into your account each month. The money is deposited into a pool from which the fund company buys all the securities included in a specific stock index. In this way, the index is replicated, and the ETF's performance depends on the performance of the respective index.

An ETF aims to replicate the return of the index it tracks, rather than generating profits by selecting individual companies. ETFs are flexible and potentially lucrative. Although they are subject to price fluctuations and can experience losses, this risk can be minimized through broad diversification. Due to their potentially high returns compared to other investment products, they are particularly suitable for savers who want to use their remaining investment time efficiently.

Step by step to the right retirement plan: Effective saving from age 40

Retirement planning for those over 40 should primarily focus on returns. Even though the investment period isn't as long as for someone in their 20s, the money can still be invested profitably and efficiently in 25 years. However, it's crucial to choose a retirement plan that aligns with your individual goals.

We're happy to help you find the ideal product for building your wealth. Together, we can determine the size of your pension gap and which retirement plan is best suited to your needs. Our BKC advisors are available to help you look to the future with peace of mind. Get in touch!