Working in old age When it pays to have a job at retirement age
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More and more retirees are continuing to work voluntarily. They take on a mini-job or put off retirement altogether. Financially, it’s not always worth it.
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Those who reach retirement age don’t necessarily feel ready for retirement. After all, 70- and even 80-year-olds are usually much fitter today than previous generations. This is clearly reflected in the labor market. In 2006, just under seven percent of people between the ages of 65 and 69 were employed, reports Ulrich Walwei, Vice Director of the Institute for Employment Research (IAB) at the German Federal Employment Agency. By 2019, the proportion of these working seniors had climbed to around 18 percent.
According to the labor market expert, this is due to the fact that skilled workers are still rare — and courted accordingly, even at an advanced age. In addition, many people simply enjoy their work longer. In surveys conducted by the IAB, this was the reason given by around nine out of ten pensioners for their continued employment. "However, a significant portion of respondents also cite financial reasons for being gainfully employed. This is particularly true for women, who, according to their own statements, are more likely than men to need additional income to supplement their old-age pension," Walwei reports. By the way, the average retirement pension before taxes was 1269 euros last year. That was 253 euros more than in 2000.
If you want to work after you reach retirement age, the main benefit is that pensioners can earn as much extra as they want – without having their full retirement benefits reduced. Reductions are only made in the case of flexi-retirement, i.e. early retirement.
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From the regular retirement age, which is 67 from the 1964 birth year. If you are under the age of 65, you can earn an unlimited amount on top of that. According to Vereinigte Lohnsteuerhilfe, the employment does not even have to be reported to the pension insurance agency. Working pensioners enjoy another advantage: "In this employment, the employee does not have to pay contributions to pension or unemployment insurance," informs the German pension insurance. "However, if you earn more than 450 euros per month in addition, you are subject to social insurance and must pay tax on your additional income," explains Vereinigte Lohnsteuerhilfe.
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Top up with little effort
The most popular combination is therefore a pension plus a mini-job. About five percent of all retirees recently engaged in marginal employment, according to the German Pension Insurance Fund. Only about one percent of pensioners, on the other hand, earned more than 450 euros a month.
The advantage of this model: Monthly income can be significantly increased with little effort. A mini-jobber may earn up to 450 euros a month or 5400 euros a year. That is more than a third of the average old-age pension. Several mini-jobs can also be combined. "However, the total income may not exceed the sum of 450 euros of monthly pay or a work assignment of a maximum of 70 days per calendar year," Walwei points out.
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He draws attention to another possible financial advantage of working in retirement. Those who draw the full old-age pension can make voluntary contributions to the pension insurance fund. In this way, the pension payment increases once a year, Walwei explains. This could be lucrative.
Vereinigte Lohnsteuerhilfe provides a calculation example: A woman reaches the standard retirement age in December 2019. She now receives a pension, but continues to work in a part-time job on a 450-euro basis. Employee and employer pay contributions to the statutory pension scheme throughout the year. In the case of this woman, that’s a total of about 200 euros. As a result, her pension would increase from 1. July 2021 increase by around 4.80 euros per month.
So much for the theory. Whether voluntary contributions are worthwhile depends on the individual case. "Often, the short-term advantage of having ‘more net from gross’ is more relevant for insured persons," Walwei has noted. "Such a decision should be made by everyone according to their needs and, if necessary, also seek advice from pension insurance experts."
Whether and from what income an activity beyond the mini-job is worthwhile also varies from case to case. Factors such as earnings level, current age or number of children also play a role in the question of how much tax and social security contributions are due. For example, the employee contribution to social security can vary between around 9.2 percent and around 20.1 percent, explains an expert from the German Pension Fund. With an income between 450 and 1300 euros, the employee would only have to pay reduced social security contributions.
Advantages of the deferred pension
Those who do not yet feel ready for retirement can also postpone it. This happens more and more often. According to Walwei, the average retirement age has risen from 62.3 years to 64.3 years in the past 20 years. Those who postpone their pension not only benefit financially from higher monthly cash receipts. "Employees can increase their pensions by retiring later," Walwei explains. "Insured persons receive a pension supplement of 0.5 percent for each month they claim the standard old-age pension later. So working one year longer means six percent more pension."
Good preparation pays off
If a retiree is not dependent on earnings, he or she can also find a new task in volunteer work. "In addition to the financial aspect, psychological well-being is also important," Walwei points out. "Volunteer work can also keep you fit and be seen as meaningful in one’s own perception. Most simply still want to feel needed."