Pension insurance

[vryy]

Hey, I'm planning to buy a private pension insurance to prepare for my retirement. Since I'm from a country which does not have good concept on social security, I'm not familiar with this topic except the mandatory one. Do you have suggestion which I should buy?

[PandaMunich]

I'm planning to buy a private pension insurance to prepare for my retirement. Since I'm from a country which does not have good concept on social security, I'm not familiar with this topic except the mandatory one. Do you have suggestion which I should buy?

Don't buy any of the available ones - they are only of profit to the person who sells it to you (he gets a high commission at the start, so what you pay in the first few years doesn't get invested, it gets paid to the person who sold it to you) and to the private insurance company who offers them, since they charge high yearly fees: https://0-rrup--renten--vergleich--8hc- ... r_pto=wapp
See here for an article listing the disadvantages: https://www-capital-de.translate.goog/g ... r_pto=wapp
Only for very high income people does the tax advantage of a Rürup private pension "compensate" the above disadvantages, but even then, they should only choose Rürup plans that invest into stocks and funds.

Instead, just invest into ETF.
Both these low-cost German brokers:

• TradeRepublic: https://traderepublic.com/en-de

• Scalable Capital (just use their free account "Free Broker): https://de.scalable.capital/en

have an interface in English.
If you open a "Free Broker" account via Scalable Capital, you can get 25€ if you open the account via the Shoop cashback site: https://www.shoop.de/cashback/scalable_capital

It needs to be a German broker, because otherwise you would have to file a German tax return in which you calculate the capital income generated by your investment funds - which is not an easy task.
A German broker does these calculations for you and also already retains the German tax that is due.

Please see here for a comparison of low-cost brokers: https://www.justetf.com/de/vergleiche/neobroker/
The JustETF website also has content in English and is a good source to learn the basics on investing in ETF: https://www.justetf.com/en/

[vryy]

Thanks @PandaMunich for the useful information. You are telling that ETF is more effective than the Rurup pension plan in the long term, right? I think I trust you since I do not know the hidden costs of these insurers. There are many of them and seems that they are all scams.

Talking about ETF, I noticed that the online bank that I'm using (Comdirect) also offers ETF trading platform. I do not know the cost but I think it could be higher than TradeRepublic and Scalable Capital. If you have information about that, you can let me know. Otherwise, it's fine.

I'm also thinking about shares & stocks, but that needs close monitoring, which I'm irritated to do so. ETF seems to be a more feasible option.

[PandaMunich]

Talking about ETF, I noticed that the online bank that I'm using (Comdirect) also offers ETF trading platform. I do not know the cost but I think it could be higher than TradeRepublic and Scalable Capital. If you have information about that, you can let me know. Otherwise, it's fine.

comdirect charges 1.5% (only for 239 out of the 1,651 ETF that they offer, do they not charge anything - but these 239 ETF will not be desirable ones, i.e. they will probably still get their fee, but from the ETF, as a kickback, and this will come out of your profit): https://www-justetf-com.translate.goog/ ... r_pto=wapp

[Nixon]

Would German investment companies work with US citizens?
Reason I am asking is that I tried to open stock investment account in couple of banks (Commerzbank and DeutscheBank) and they didn't want to do it for me since I am a US citizen.

[Alberto]

What I didn't like about pension plans is that the only way to get your capital back is by buying a pension annuity. And this conversion is always incredibly unfavorable for the retiree. No surprise pension vendors never mention it, they only ever speak about the accrued capital.

If a 65yo man convert 100k€ capital into an inflation adjusted pension income that leaves 50% to his wife, how much is such income? Ridiculously too little. If people looked at this, most of them would invest differently

[Alberto]

Some numbers to back up my previous post
https://www.hl.co.uk/retirement/annuiti ... -buy-rates

65yo, 50% life (that means after death the survive spouse keeps receiving 50% pension), 3% escalation (kind of inflation adjustment) : 100k buys you 4776 per year.
The crudest math would say that if you live longer than 100k/4776 = 21yr, so 86yo, you win, otherwise you lose. In reality is less good than this: throughout the years they pay your pension, the remaining capital they hold is of course invested, averaging long term (your capital, + the capital of other retirees/investors, over decades) some almost certainly growth. So even if you live much beyond this 21yr, they still win.

Fair enough you're buying an insurance, the certainty of a never ending income. Also, when old many of us become less capable of everything, so having a small regular income has advantages over holding a large capital. So looking at the crude number Excel-like is not all. But still, the numbers seem too skewed in favor of the annuity provider.

Guys, I'd like to learn your opinion on this detail.
Cheers,