Couples are often unaware that they lose valuable contribution years to their retirement savings during parental leave. And many are also unaware that part-time work has an immense impact on their own pension entitlements. But those who make too few provisions for their old age run the risk of living in old-age poverty later on. This affects women in particular, as it is mostly they who stay at home because of the children. What does this mean, and how can women make the right provisions?
Anyone starting a family is more likely to think about diapers than securities. The topic of pensions seems far away at first. Money in everyday life is scarce anyway, and the focus is on expenses for the child.
«When it comes to making their own provisions for old age, building up assets or fund savings plans to provide for their children, many young couples put off their plans until tomorrow,» says Birgit Heidenreich, a pension expert at Deka.
Women in particular are taking career breaks or working on a reduced scale. In many couple relationships, the birth of the first child leads to a so-called «re-traditionalization» of gender relations for various reasons. What is meant is a relapse into old role models — usually to the disadvantage of the woman. This has been analyzed by the Federal Office for Population Research.
Most fail to provide financial compensation for part-time work and childcare. Studies by the Ministry of Family Affairs show: Women aged 30 to 49 with children mentally put off the issue of retirement.
The hard facts
How much a woman gets later as a statutory pension depends on how much she earns on the job. Dropouts cut into pensions. «Long terms without interruptions are the most important thing when paying into a pension,» says Birgit Heidenreich. So anyone who stays at home to raise children should think about their financial provision.
We have put together the ten most important tips for you here.
1. talk about money
What sounds simple often looks different in reality. «You don’t talk about money. You have it,» so the saying goes. But transparency is especially important for young parents in their new phase of life. After all, money is one of the biggest causes of conflict in a partnership.
Address the topic of money openly. How much do you have available together per month? Who is setting aside how much for old age? What do you spend your money on? What can you afford?
You should know what your fixed costs are and how you envisage planning your future life. How everyone deals with euros or cents depends very much on the type of money you have. In everyday life, the 3-account model is recommended: This allows a couple to plan their finances together. At the same time, each retains some of their independence.
The 3-account model works like this: There is a joint account from which all joint expenses for the family are deducted, such as rent, telephone, daycare fees, fund savings plan for the child, club fees, vacation, purchases, insurance or telephone. In addition, everyone keeps their own account. The respective income goes into the joint account. What is left over at the end, both share half and transfer it to their own account.
2. don’t skip your retirement planning during parental leave
Once the children are here, taking care of them takes a lot of time. You can’t even think about your job for the time being. Most of the time, women take care of their offspring. In the first year of a child’s life, only around 8.5 percent of mothers work, and around 42.8 percent in the second year. This is confirmed by figures from the Cologne Institute for Economic Research.
In contrast, with fewer exceptions, fathers remain at work without a lengthy interruption: 91 percent of fathers of young children under the age of three were employed in 2016.
«It is important not to postpone the topic of retirement provision further and further into the future or even to simply skip it,» says Birgit Heidenreich from Deka. The good news is that time spent with children is not lost for retirement. The statutory pension insurance takes the period during which you receive parental allowance into account as child-raising time. A total of three years of child-rearing are recognized.
The bad news is that the calculation is based on the average earnings of all insured persons. This is currently 37,873 euros per year. If you earn more than this, you will have a gap, as this is not taken into account when calculating your pension.
Watch out: If both parents go on parental leave at the same time and both pay into the statutory pension insurance, they must inform the pension insurance company to whom the child-raising periods will be credited. They only have a short time to do this: two months from receipt of the parental allowance.
Our tip: Take care of the crediting of the parental leave in good time and close the gap that arises for you.
3. keep the career break as short as possible.
Both partners decide to have a child. But the financial consequences are often borne by the woman. And this is despite the fact that women and men have roughly the same school-leaving qualifications. Women are even slightly more likely to have a university entrance qualification.
of mothers go back to work after a year’s break
After the birth of a child, 44 percent of mothers go back to work — full or part-time — after a one-year break in their job. When the youngest child is two years old, more than half (58 percent) of mothers go back to work. This is confirmed by the figures from the Federal Statistical Office.
It is precisely in mid-life, between the ages of 30 and 50, that many women become economically dependent on their partner or on transfer payments. Despite professional qualifications and high motivation, they are unable to earn a living, according to a study by the Ministry of Family Affairs.
Many women want to spend as much time as possible with their child, especially in the early years. Others attach importance to having their child cared for early on so that they can get back to work quickly themselves. But daycare places for children under the age of three are scarce in many places. In this case, it’s worth considering whether the man can cut back on his career and thus help the woman have more professional leeway.
Make agreements with your partner on how you want to divide childcare and the job. Ideally, you should share the parental leave. With parental allowance and parental allowance plus, you can coordinate your weekly working hours individually. 4.
Weigh up the advantages and disadvantages of part-time and mini-jobs.
After parental leave, women often reduce their full-time jobs to part-time. More than half of all mothers in Germany work part-time, on average 17 hours a week. That is very little by international standards. In other countries, the figure is 25 hours a week or more. Fathers work an average of 42 hours a week. This is the result of a study by the Organization for Economic Cooperation and Development (OECD).
Many take on mini-jobs after parental leave because they can’t find anything else or their partner brings home the money as the main breadwinner. At this point, at the latest, a dangerous impasse looms. With the low wages, it becomes difficult to put money into private retirement savings. Permanent mini-jobs pave the way to old-age poverty.
Anyone who works exclusively in a commercial mini-job for 45 years receives a pension of 164 euros per month. This is the result of a study by the German Federation of Trade Unions (DGB). When employed in a private household, it is even only 55 euros.
«Before you reduce your working hours, you should have the pension insurance calculate what this means for you in terms of pension loss,» recommends pension specialist Birgit Heidenreich. Since you earn less part-time, you will receive less pension in old age. Important to know: How much pension do I need, and how high is the gap to my actual earned entitlement?
Your advisor at the savings bank will also work with you to determine how high your actual pension gap is, or you can use Deka’s pension estimator.
5. demand financial compensation for raising children
«If there is nothing you can do about your wife’s professional situation, you should definitely close this gap: ideally with a fund savings plan,» explains Birgit Heidenreich from Deka. And: You should not pay the contributions to this from your own account, but from the family income.
So more money should flow from the family coffers into the woman’s private pension. Heidenreich: «A fund savings plan is so suitable because you can flexibly adjust regular savings amounts at any time or even suspend them once if necessary. And: In the current low-interest phase, in principle only fund savings offer the prospect of the desired return.»
The state also has an interest in ensuring that the statutory pension is supplemented by a private pension. That is why it promotes this with the state Riester subsidy. Private pension provision is supported by the state through direct subsidies and tax benefits.
It can be particularly worthwhile for families: If, for example, you save from your income into a certified Riester fund savings plan and are eligible for subsidies, you will receive from the state not only the basic subsidy of 175 euros per year, but also the child allowance of 300 euros for each child entitled to child benefit.
To receive the full Riester allowance, you must save at least four percent of your previous year’s income subject to social insurance contributions — a maximum of 2,100 euros less allowances, with a minimum of the basic contribution of 60 euros. Basic and child allowances are reduced if lower personal contributions are made.
Contributions up to the maximum amount of 2,100 euros per year can also be claimed as special expenses. The tax treatment of income depends on the personal circumstances of the individual customer. In the future, it may also be subject to retroactive changes, for example as a result of a change in the law or a change in interpretation by the tax authorities.
And another tip: You can stipulate in a prenuptial agreement how your pension loss will be compensated. For such a contract, you should seek advice from a family law attorney.
6. alternatives to part-time work: flexible working models
When the daycare center closes in the afternoon at the latest, the second half of the day begins for many parents. Then it’s time to pick up the kids, take care of dinner and put them to bed. Many parents want to be with their children, especially during this time.
In most companies, however, attendance is mandatory. Working hours in Germany tend to be standardized in a family-unfriendly way, because they are tailored to an eight-hour day. This is often too much for parents.
As a result, women are once again taking on the traditional role. Experts criticize the fact that the West in particular has remained at the same old level. There are critical voices that describe certain role constellations as a danger to equality, especially when female academics drop out of the workforce.
Flexible working hours facilitate the division of labor within the family. Digitalization offers new opportunities. A rethink is currently taking place here in many companies. Employees are increasingly demanding location-independent working and can thus increase the number of hours in their employment contract.
7. find out about the consequences of separation and divorce.
Admittedly: Those who have just had children do not want to deal with the consequences of a separation. But to completely suppress the topic for romantic reasons can take revenge.
of marriages are later divorced again — on average after 15 years (Statista 2017).
If a marriage breaks up, the consequences of unequal income distribution become clear. And this is almost exclusively to the detriment of the partner: the man has earned, the woman has not worked or has worked only a little. As single mothers, women are left to fend for themselves for the time being.
The reason for this is the 2008 reform of the law on alimony, since which there is no longer a general right to alimony from the ex-partner. Only child support is obligatory. The principle of personal responsibility applies. Many women are not aware of this. Legislators expect mothers with children to return to work quickly. With regard to childcare options, the court weighs each individual case.
As far as pensions are concerned, pension equalization is carried out as part of the divorce. In other words, half of the man’s pension entitlements acquired by law during the marriage are credited to the woman’s pension account.
But this is not enough in old age. The risk of impoverishment is high. And the way back into the job is difficult.
In 2015, the Ministry of Family Affairs stated that marriage «promotes dependency and threatens the existence» of many women, especially if the man becomes unable to work or unemployed — or if the marriage fails.
Also unmarried couples with children should inform themselves thoroughly about their financial security in case of a separation. As a rule, they are still in a much worse position. They are neither entitled to the partner’s pension nor to the assets earned through equalization of gains. If women without a marriage certificate leave their jobs because of the children, they are in no way protected.
A partnership agreement is therefore important. In it, you regulate how you will be provided for in the event of a breakdown of the relationship or the death of your partner.
8. save even small amounts and invest them.
Fund savings plans can be set up with regular savings amounts as low as 25 euros. If you hold off on a lot of small expenses, you’ll quickly reach this amount. But as soon as there is money left over, most Germans still transfer it to a savings account or a call money account. There is a lot of skepticism about stocks. The main thing is no risk. That’s how many people in this country think.
According to the Bundesbank, Germans put 39 percent of their financial assets in cash or as deposits in checking and call money accounts. Unfortunately, the money in these accounts is not becoming any more. Measured in terms of purchasing power, it is even losing value. Interest rates of 0.5 percent or less are offset by inflation of around two percent.
Saving does not just mean doing without. It is an important step on the way to your own independence. Let’s say you deny yourself one or two souvenirs for your children or take a Tupperware box with you rather than buying food on the road.
9 Become financially confident
«When it comes to investing, many women think, ‘That’s too complicated. I don’t know anything about that. I don’t trust myself to do that,» says financial expert Heidenreich. «But if you don’t develop a plan in time, you’ll get the receipt in old age at the latest.»
Women still earn less than men. That makes a good investment strategy all the more important for them. It is also crucial to start saving and making your own provisions as early as possible.
Only those who take care of their money can make more of it. How to do this is usually simply lacking in knowledge. 60 percent of women have little or no interest in economic issues. More than half of women more or less agree with the statement: «I have no idea about what’s going on in the stock market.» That is the result of a survey by the banking association.
Added to this is a lack of commitment: many women still leave the management of assets to their partner.
The right financial knowledge can be learned. More and more women have recognized the topic for themselves. There are numerous blogs and books on the subject. Take responsibility for your own finances. Acquire basic knowledge. Control and manage money together with your partner. Invest small amounts.
You will see: As you gain experience, you will become more financially confident. And get advice — personal advice is especially important for such an important topic as financial security in old age.
10. pay attention to an above-average return in the long run
How much should you set aside for retirement? A good guide is the rule of thumb of ten percent of gross income. You can base your retirement provision on three pillars: Statutory pension insurance, your employer’s company pension plan — if you have one — and private provision through regular fund savings.
of your gross income should be invested in your old-age provision.
Above all, make sure you get the right return so that the money you put aside grows as you want it to. Fixed deposits and savings books do not succeed in building up assets. Example: If you invest 100 euros a month in a fund savings plan, you will have saved 81,870 euros after 30 years. The calculation example is based on the assumption of a five percent return.
If you can invest your money for ten years or more, it is advisable to take a calculable risk on the stock market. And do so with a fund savings plan that minimizes fluctuations in value over this period, even with higher-risk asset classes such as equities.
Please note: The specific risks depend on the choice of product. Capital market-related fluctuations in value and currencies cannot be ruled out and can lead to losses.
Mixed funds that can adjust the share of equities to the market investment have proven themselves well. Important: Invest your money for as long as possible so that compound interest can take full effect, and keep calm when the stock market goes up and down at times.
