Day 6: Closing the pension gap – how to do it and why it’s so important
We’ve already gone over the different types of retirement provisions in Germany: state pension with private opportunities for supplementing, and the corporate retirement plan. We have not yet covered the option that is the most flexible, most comprehensive, and easiest to do yourself: private investments without intermediaries like insurance companies, brokers, banks, or anyone else.
Many people are afraid to invest in stocks. But if you have a corporate or private retirement plan, it’s quite possible that your money is invested in stocks as it is. But in that case, you don’t know exactly how and where. You don’t know where your money is going. How about if instead of that, you had full control over your money?
The three biggest advantages of managing your own money
· Have control over exactly how and where your money is invested
· Minimize fees
· Increase your financial knowledge
Indeed for people who are still new to the topic, the selection of individual stocks can be difficult. That’s why we’d like to direct your attention to ETFs (exchange-traded funds). If you’re familiar with our earlier courses, then you already know what ETFs are and how they can help you multiply your wealth for a secure financial future. When you invest in ETFs for your retirement savings, your money grows thanks to compound interest and consistent monthly contributions. Additionally, you can choose the ETFs yourself and consciously decide which industries and companies you want to support with your money.
By contrast, having your money managed by a professional is very expensive. The fees for mutual funds or unit-linked insurance plans are high, and private brokers and bankers don’t work for free. Buying your investment products directly is definitely the cheaper option by comparison.
Important: your financial knowledge
You need a little financial knowledge for this – basically financial literacy, which you really can acquire quite easily. And this little investment is worth it, because this knowledge can fundamentally change your life. If you go into investing without this knowledge and blindly make decisions, it’s not going to feel right. Instead, you can continuously improve your general knowledge about markets and companies and engage in continuing education about financial investments. Your financial education will gain momentum, and you can make well-informed decisions.
Letting your money work for you indefinitely
If you invest, it’s of course also important that you know how to manage your money. Your money will grow to the point that you’ll thank yourself for your decision and courage to dare to invest – and that’s when you’ll need this knowledge. Imagine an older, wiser you, sitting before a beautifully cultivated fortune. Now you’d like to pay yourself something from that gorgeous mound of retirement money. The question now is: how? Regular payouts work wonderfully. For instance, you can set it up such that you pay yourself out some amount monthly or quarterly. The rest continues to multiply further. This is how you’ll allow your money to continue working for you while you’re happily making regular retirement payments to yourself.
The most important questions when selecting retirement provisions products
You’ve now learned something about government, corporate, and private retirement provisions. Especially if you are looking for a private retirement plan right now, it’s a good idea to ask yourself the following questions before making a decision:
· If you’re investing your money, where exactly is it going, and what is the impact of your investment? With some product offerings, you can decide for yourself where your money gets invested.
· What are the fees? Fees can apply any time you use a financial service. That’s normal – just make sure you keep them in mind.
· What does it say in the general terms and conditions (GT&C)? What happens if you don’t continue making contributions? What does the termination clause say?