Private Savings
Private retirement savings means independent investing through a brokerage account (Depot), typically in exchange-traded funds (ETF). Unlike subsidized pension products (Riester, Rürup, bAV), you retain full control over money: can withdraw anytime, change strategy, or pass to heirs.
This approach suits the Ladder phase (from 2 years in Germany): requires stable income, understanding of tax system, and readiness to manage investments independently.
Why Private Savings
State pension (GRV) replaces 40–48% of final income [1]. For immigrants who started contributions at 30–40 years, this figure will be lower due to fewer years of accumulation.
Advantages of private savings:
- Full control: you decide where to invest and when to withdraw
- Flexibility: access to money anytime (not locked until 62–67)
- Inheritance: capital passes to heirs, doesn't burn
- Low fees: ETFs charge 0.1–0.3% annually vs 1.5–2.5% for active funds [2]
Main Instrument: Depot
Depot (brokerage account) is an account for buying securities (stocks, bonds, ETF). Opened free at bank or online broker (Trade Republic, Scalable Capital, ING).
Basic strategy: automatic monthly contributions (Sparplan) into diversified ETFs.
Comparison with Subsidized Products
| Criterion | Depot with ETF | Riester/Rürup/bAV |
|---|---|---|
| Flexibility | Full: can change strategy anytime | Rigid restrictions: fixed contract |
| Access to money | Anytime (with tax on profit) | Locked until 62–67 |
| Inheritance | Full: capital passes to heirs | Limited or absent |
| Taxes on withdrawal | 26.375% on profit [3] | Full amount taxed as income |
| Fees | 0.1–0.3% annually (ETF) [2] | 1.5–2.5% annually (active funds) [2] |
| State support | No | Yes (subsidies, tax deductions) |
How Much to Accumulate
4% Rule
The 4% rule states: you can withdraw 4% of initial capital annually with high probability (95%) that money will last 30 years [4]. Research based on US historical data (1926–1995) for portfolios of stocks and bonds.
Calculation example:
- Need €2,000/month = €24,000/year
- Target capital: €24,000 ÷ 0.04 = €600,000
Accounting for State Pension
Private savings complement state pension (GRV), don't replace it.
Example:
- Desired retirement income: €2,500/month
- Expected GRV pension: €1,200/month [1]
- Gap: €1,300/month = €15,600/year
- Target capital: €15,600 ÷ 0.04 = €390,000
Estimate future pension via annual Renteninformation letter or calculator on Deutsche Rentenversicherung website [5].
How Much to Save Monthly
Monthly contribution depends on starting age, target amount, and expected return. Calculations below assume reinvestment of all profits and average return of 7% annually (historical average real return of global stock market) [6].
| Starting Age | Years to 67 | Target €400,000 | Monthly Contribution |
|---|---|---|---|
| 25 years | 42 years | €400,000 | €305 |
| 35 years | 32 years | €400,000 | €540 |
| 45 years | 22 years | €400,000 | €960 |
The later you start, the higher required contributions: starting at 45 requires saving 3 times more than starting at 25.
For immigrants arriving in Germany at 30–40, this means necessity of higher savings rate compared to local residents.
Strategy
Accumulation Phase (before retirement)
- Regular contributions (Sparplan)
- High stock allocation (80–100%)
- Reinvest dividends
Consumption Phase (in retirement)
- Gradual selling
- Reduce risk
- 4% rule or flexible withdrawals
Tax Optimization
Investment profits (dividends, interest, capital gains) are taxed at 26.375% (25% Abgeltungsteuer + 5.5% Solidaritätszuschlag + church tax if applicable) [3].
Freistellungsauftrag (Tax Exemption)
Freistellungsauftrag is an instruction to broker not to withhold tax on first €1,000 of investment profit per year (€2,000 for married couples) [8]. Filed online in broker's personal account.
If you have multiple brokerage accounts, distribute the limit proportionally to expected profits.
Tax Deferral
Accumulating ETFs (thesaurierende ETF) reinvest dividends automatically. Tax on dividends is calculated, but actual payment is deferred until sale. This allows capital to grow faster through compound interest.
Distributing ETFs (ausschüttende ETF) pay dividends to account, and tax is withheld immediately.
Sale Order (FIFO)
In Germany, FIFO (first in, first out) principle applies: when selling, securities purchased earliest are considered sold first [7]. This is important for tax base calculation.
Combined Approach
Private savings can be combined with subsidized products. Selection criteria:
| Product | When to Use | Priority |
|---|---|---|
| bAV (betriebliche Altersvorsorge) | Employer adds 20%+ to your contribution | First: use up to matching limit |
| Private Depot with ETF | You value flexibility, control, low fees | Second: foundation of long-term savings |
| Riester | You have 2+ children and income under €50,000/year | Third: only if subsidies outweigh fees |
| Rürup | You're self-employed with high income (over €80,000/year) | Fourth: tax deduction more important than flexibility |
Basic logic: first use "free money" (employer matching in bAV), then invest in private savings where you control risks and costs.
Psychological Dimension
For immigrants from countries with unstable financial systems, the idea of "trusting money to market for 30 years" triggers natural skepticism. You've seen "guaranteed" pension funds collapse, deposits devalue, accounts freeze.
German system is structurally different:
- BaFin regulation: brokers are licensed, client assets separated from company assets (Sondervermögen) [9]
- Deposit insurance: cash on account insured up to €100,000 [10]
- Transparency: ETF prices are public, fund composition is known
But trust isn't built in a day. Start small: open Depot, put €50/month into broad ETF, observe dynamics for 6–12 months. This isn't financial strategy — it's trust calibration process.
Math only works if you're psychologically able to hold position during crisis. If you sell everything in panic during 30% market drop, ETFs won't help. Therefore important to determine "pain threshold" in advance and not invest more than you can calmly hold for 10+ years.
FAQ
Not legal or financial advice.
I'm 40 and just started in Germany — is it too late for the 4% rule?
The 4% rule assumes a 30-year withdrawal period. Starting at 40 with 27 years until the retirement age of 67 means a shorter accumulation phase, requiring higher monthly contributions. For a target of €400,000 at 7% average return: starting at 25 requires approximately €305/month, at 35 approximately €540/month, at 40 approximately €960/month. The gap is significant but not insurmountable. Key factors: (1) the GRV (gesetzliche Rentenversicherung, statutory pension insurance) pension will also supplement income — immigrants with 25+ years of contributions still build meaningful pension rights; (2) existing assets from the home country (if transferable) accelerate the timeline; (3) the target amount may be lower if you plan to retire in a lower-cost country. The math works at any starting age — the required input changes, not the principle.
Is it better to invest a lump sum or via Sparplan (DCA)?
Historically, lump-sum investing outperforms DCA (dollar-cost averaging) approximately 67% of the time, because markets trend upward and money invested earlier has more time to compound (Vanguard 2012 study across US/UK/Australian markets). However: (1) DCA via Sparplan (automatic savings plan) reduces the psychological risk of investing at a market peak — relevant for immigrants making their first investment after years of cash savings; (2) a common hybrid approach: invest 50% immediately, spread the remaining 50% over 6-12 months via Sparplan; (3) the difference between lump sum and 12-month DCA is typically 1-3% of the total amount — meaningful for amounts over €100,000, negligible for €10,000. The psychologically correct decision is the one you can sustain without panic selling during a downturn.
My spouse and I have different risk tolerances — how to handle this?
This is common in immigrant households where one spouse had direct experience with financial crises and the other did not. Structural approaches: (1) separate Depots (brokerage accounts) with different allocations — one partner 80% stocks / 20% bonds, the other 40/60 or 100% Tagesgeld (savings account); (2) shared portfolio with a compromise allocation (e.g., 60/40) — simple but neither partner's preference; (3) defined "risk budget" — agree on a maximum portfolio drawdown (e.g., 20%) and adjust allocation accordingly. The German tax system supports either approach: each spouse has their own €1,000 Sparerpauschbetrag (saver's tax-free allowance). Separate Depots also provide legal clarity. The conversation between spouses is harder than the math — the psychological dimension of financial decisions within immigrant couples deserves dedicated attention.
What happens to my Depot if I leave Germany (Wegzugsbesteuerung / exit tax)?
Wegzugsbesteuerung (exit taxation, § 6 AStG) applies to unrealized gains on shares in corporations where you hold 1% or more — this affects company founders, not typical ETF investors. For a regular Depot (brokerage account) with ETF/stock positions: there is no exit tax on unrealized gains when leaving Germany. However: (1) upon becoming a non-resident, notify your broker — they may close the Depot or restrict it (many German neo-brokers require German residency); (2) gains realized BEFORE departure are taxed in Germany; (3) the new country's tax rules apply going forward — some countries tax unrealized gains at immigration (e.g., certain scenarios in the Netherlands). Transferring to an international broker (e.g., Interactive Brokers) before departure avoids Depot closure issues. Check the DBA (Doppelbesteuerungsabkommen, double taxation agreement) between Germany and your destination for capital gains taxation rules.
I have savings in my home country's currency — convert and invest or keep separate?
Factors to evaluate: (1) currency risk — holding concentrated currency exposure (e.g., 100% in RUB, TRY, or UAH) carries devaluation risk that has materialized repeatedly in post-Soviet countries; (2) convertibility — some currencies have capital controls that make conversion difficult or expensive; (3) opportunity cost — if savings earn 5% in local currency but the currency depreciates 15% against EUR, the real return is -10%; (4) tax implications — converting foreign savings to EUR and investing in Germany creates Einkünfte aus Kapitalvermögen (capital income) subject to German taxation. A common diversification approach: maintain a reserve in local currency for potential obligations in the home country (family support, property), convert the remainder to EUR-denominated investments. The total currency allocation is a personal risk decision, not a mathematical optimization.
Sources
- Deutsche Rentenversicherung — Rentenniveau und Rentenanpassung — https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Rentenniveau/rentenniveau.html — as of January 2025
- Morningstar — European ETF Fee Study 2024 — https://www.morningstar.com/lp/european-etf-fee-study — 2024
- Bundesministerium der Finanzen — Abgeltungsteuer — https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerarten/Abgeltungsteuer/abgeltungsteuer.html — January 2025
- William Bengen — Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning — 1994 (original 4% rule study)
- Deutsche Rentenversicherung — Rentenschätzer — https://www.deutsche-rentenversicherung.de/DRV/DE/Online-Dienste/Rentenschaetzer/rentenschaetzer.html — January 2025
- Credit Suisse Global Investment Returns Yearbook 2023 — https://www.credit-suisse.com/about-us/en/reports-research/global-investment-returns-yearbook.html — historical average real return of world stock market 5.3% (nominally ~7% with inflation)
- Bundesministerium der Finanzen — Besteuerung von Kapitalerträgen — https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerarten/Kapitalertragsteuer/kapitalertragsteuer.html — January 2025
- Bundesbank — Freistellungsauftrag — https://www.bundesbank.de/de/service/schule-und-bildung/glossar/freistellungsauftrag-795832 — January 2025
- BaFin — Einlagensicherung und Anlegerentschädigung — https://www.bafin.de/DE/Verbraucher/Bank/Einlagensicherung/einlagensicherung_node.html — January 2025
- Entschädigungseinrichtung deutscher Banken (EdB) — https://www.edb-banken.de/ — deposit insurance limit €100,000