I work in Germany and my company offers me a pension plan. I have several options of contribution and I would like to know which is the most interesting.
My company contributes with 1% of my salary to the pension regardless of what I contribute. From my side, I can chose to contribute 0% of my salary, 1% or 2%; and my company will match my contribution:
• A: Me: 0% -> My company 1%: total 1%
• B: Me: 1% -> company 1 + 1%: total 3%
• C: Me 2% -> company 1 + 2%: total 5%
• Minimum guaranteed interest of 1.25%.
• Average interest of the last 10 years: 2.75%
• 1% commission of the money invested.
• The company that offers the plan is Generally Insurance.
• Estimated retirement age: 67 years.
They provide a table of benefits at retirement for a total contribution of € 100 per month. The results for any other contribution will be proportional, and therefore they can be calculated from the table. The results of contributing 100 € per month (the contribution of the company plus mine, if any) from an age of 30 years until retirement are:
I think the plan looks interesting at least when I do not need to pay for myself. But apart from that, should I additionally contribute with 0%, 1% or 2% of my salary?
Thank you in advance
Sun Jan 08, 2017 3:38 pm
oldguy Senior Member
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Joined: 21 May 2006
quote: 100 € per month (the contribution of the company plus mine, if any) from an age of 30 years until retirement are:
• One-time payment: € 53,183
If you invested 100 € per month in a generic 11%/yr stock market index for 37 years, the one-time payment would be € 564,000.
I would not add anything to the company contribution. Remember, the insurance company grows your money at only about 2% or 3% - whereas the compounding of 11%/yr is completely different. (Didn't Einstein say that the greatest equation in math is compound interest?) Ironically, the insurance company collects your contribution and puts it out at 11%/yr.
A 30 year-old should not be investing at a "guaranteed 2%", you need a non-guaranteed 11%/yr - any time that you hire an insurance company to take your risks for you, the cost will be high.
Sun Jan 08, 2017 5:02 pm
bob5000 New Member
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Location: midwest USA
Agree with oldguy. Free money is good money. 1% or 2% is a poor return on your money, especially with a 1% load on new money.
Having said that, the German company is probably losing money on their portfolios since they pay negative rates there and recently had major capital losses on the new 100 year bonds. If rates ever normalize and rise to maybe 6%, take another look. It's not high, but it's livable if you are old and have saved enough.
Tue Jan 10, 2017 3:20 pm
kender6 New Poster
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Thanks oldguy and bob5000. I've been loking around and I agree with you too. Thanks for the answers!
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