Retire with a plan: Pension fund payout or monthly pension?
Published on 10.08.2023 CEST
How far in advance should you plan for your (early) retirement? If you are insured with a pension fund, an important question arises when you withdraw this money: Would I prefer a pension fund lump-sum payout or a lifelong pension?
Whether it’s a lump-sum withdrawal or a pension: Both options have their advantages – and certain disadvantages. The following examples compare the most important ones.
Option 1
Pension
A pension gives you security: You get a stable source of income each month, allowing you to easily plan your financial future well into old age.
However, there are three key disadvantages:
- The pension is fully taxable
- It will not be automatically adjusted for inflation (press release in German)
- In the event of death, the beneficiaries (children, spouses and life partners) usually only receive a reduced survivor’s benefit
Option 2
Pension fund payout
A lump-sum withdrawal gives you greater freedom. You can pass on your money in line with inheritance law and invest larger amounts yourself – to maintain your property or to pay off your mortgage, for example. Those who have their pension fund paid out to them benefit from a reduced pension rate when it comes to taxation.
The disadvantages of this option:
- You are responsible for your investments.
- You have to fund your living expenses in your lifetime yourself.
The higher your life expectancy, the greater the benefits of a pension.
Our tip: It’s worth planning your retirement early
There is never a clear “right or wrong” answer, because each individual has their own unique circumstances and a different pension fund with a different set of rules, etc. However, the following applies to anyone who’s insured: It’s worth planning your retirement early on and factoring in time reserves. This will give you more flexibility and make it easy to meet deadlines.
Where do you currently stand on the topic of pensions? What issues are concerning you? We will be happy to answer any questions you have about payouts from your pension fund or about your retirement in general.