Hi Moonwaves!
Right, trying this again. Was just about finished and ready to post this last night when I managed to somehow find a combination of keyboard strokes that wiped everything. I tell myself over and over again to draft long posts in a program that auto-saves but I never do it. Oh well.
If you're using Firefox, I'd recommend using "Textarea cache" as an add-on.
So, I'm not really aiming for early retirement but would like to at least get to a place where I feel ordinary retirement might be possible! Or maybe even be able to semi-retire in ten years or so (I'll be 40 this year).
Being a German in your age and have gone about 40% for FI, in my humble opinion your aim ("ordinary retirement might be possible") shouldn't be a problem. Looking at your current financial situation, I wouldn't expect you to be able to semi-retire in ten years - maybe quarter-retire ;-) is possible.
About a year after I moved to Germany I took out what is called a Riesterrente (rente is German for pension and Riester is the Minister who came up with the idea of rewarding people who saved privately for their old age with tax benefits and a premium). Apart from being silly with money for far too long, I have made three big financial mistakes. One of them was getting some not very good advice from a financial advisor and opting for a plan that front-loaded all of the admin costs into the first five years. And even when I found out a year or so ago that that was the case, I still didn't quite get it and just left it be. So, I am now almost through that five-year period, paying €150 per month and, so far, have very little to show for it. To get the maximum tax advantage from that plan you can contribute €2,100 or 4% of salary per year.
I'm not a friend of insurance-based finance products just because of these high costs which kill the good intentions. Even though it is not possible to judge a product without knowing the precise situation of the customer, I would rather advice against these products.
Is your front-loaded product a Riester-Rentenversicherung or are you paying into a Riester funds product? AFAIK, the "DWS Riesterrente Premium" is also front-loading its product.
My second big mistake was not starting a Betriebliche Altersvorge, which is the company pension scheme offered by my current employer. For some strange reason, the first year I heard about this I completely missed the fact that they match up to 30% (percentrage depends on length of service) and also the fact that the money is deducted from your gross salary, so there are tax and social insurance savings to be had. I had a meeting yesterday with one of the two providers that offer this scheme and think it's a no-brainer to start paying into one. The schemes can apparently be easily transferred to new employers if you move jobs (although the new employer may not offer the same, or any, matching) and you can take a break of up to three years if you can't afford to make payments. The maximum you can contribute is €238 per month but, according to the nice Allianz man's calculations, deducting €238 from my gross salary would result in a bottom line reduction in my cash every month of €123. And then, as long as I am still employed with the company in February, they will pay me 30% of whatever it is that I have contributed to the scheme. It's unlikely that I will get a new job very quickly but I will be handing in my notice in December at the latest so will most likely still be here in February (have a silly three months from end of quarter notice period). There is a guaranteed return of 1.75% on what's invested - the actual return is calculated every year and this year, for example, is just over 4%.
Sorry, but I'm not sure whether not starting a Betriebliche Altersvorsorge was really a mistake. Yes, your contributions are not taxed and you do not pay social insurance on your savings
now, but you will pay tax and social insurance on your withdrawals in your retirement phase.
Maybe the tax rate will be lower during retirement - nobody can tell how much lower. Just think about the demographic situation in about 25 years from now: If the group of retirees is growing in size, they will have to pay more taxes as well.
Additionally keep in mind that during your working phase the employer pays half of your health insurance (if you're in a statutory health insurance). During your retirement you will have to pay both halfs on the withdrawals. The Allianz agent did not mention this? Well mine didn't mention this as well - maybe both have "forgotten" to mention this.
"There is a guaranteed return of 1.75%
on what's invested" - sorry to tell you, but this is a wrong assumption. The guarantee is based on the amount which is left after the costs have been substracted. The costs are not fixed, so in my humble opinion this guarantee is worthless. (I used the figures which were given by my Allianz agent and just calculated the real rate of return based on the guarantee: 1,25% per year.)
I would ask you to re-calculate the numbers - don't forget to include the taxes during both phases (saving and withdrawal) if you include this into your calculation at all.
(I did not sign the contract afterwards even though the Allianz agent was very well trained in selling his product. But of course this is a personal decision.)
And please don't get blinded by the 4% this year. The insurance companies profitted from the rising bond prices (due to the falling interest rates) in the near past. If the interest rates will keep staying on this low level, this 4%-level will not be kept. There is no magic in investing - the insurance companies have no magic wand to get higher returns than you in the low-interest environment.
The current discussions about lowering the guaranteed rate from 1,75% even to 1,25% shows that even the insurance companies do not think that they can mantain higher rates of returns for a longer period. (They will try to sell as many contracts as possible this year to profit from the "better conditions" - you should really think about this twice. Always keep in mind that you are investing money for more than 20 years. I would expect a higher rate of return for parting with the money for such a long time!)
My real worry is that I'd end up devoting most of my savings to pension plans and that money isn't accessible until normal retirement age or a few years before. Am I just being blinded by the holy grail of tax advantages and would it be better to start trying to invest money directly in funds?
The holy grail of tax advantage ;-)! Speaking as a German investor this tax advantage almost always comes with a lot of regulations and you will not be able to access this money until way in your sixties. And the costs of these products are quite high compared to CDs or index funds investments. In my humble opinion you are sacrificing flexibility for the tax advantage and I'm rather uncertain whether you will really profit from it. The high costs are certain, the benefits are not.
I would like to buy a small house sometime but am not sure at this stage if this is really realistic. A lot depends on where I end up with a new job. Ideally I'd like to live somewhere a bit rural but that means the expense of a car. So until I know where I'll land, it's hard to figure out what finances will be needed. For the rest of the time I'm in my well-paying job (€51,300/year), I'll be saving as much as I can so that at least I have some kind of money behind me when I move and as an emergency fund. Everything is a bit up in the air at the moment which is why I'm a bit nervous about starting the company pension scheme I think.
If you're really thinking about building/buying a house I would rather advice you to avoid any speculative investments and rather save as much as possible in short-term assets to lower your interest rate for the credit you'll need.
Anyway, I'd appreciate any advice and opinions. I'll come back and add in actual figures as and when I have them. But from a general point of view, when do you say enough is enough, conventional retirement planning is covered, now I need to invest elsewhere?
I'm not sure whether I understand your question correctly. What do you consider "conventional retirement planning"? Riester and Betriebliche Altersvorsorge? I don't use any of them - I just invest in Tagesgeld, CDs and index funds. All of these products are low cost and ignore taxation completely. I have to admit, at first glance this might appear counter-intuitive since "everybody" (public media, banks, insurances) tells you to pay close attention to taxes but I think this is rather a fake argument to pull you away from easy-to-understand, flexible and low-cost products.
If you need advice how to invest in index funds in Germany, I would like you to read some nice German blogs (I guess you understand the language well enough to follow the main ideas):
http://zendepot.de/passiv-investieren/http://der-privatanleger.deBut keep in mind that buying a house (and taking a credit)while investing in volatile assets is not without a risk. I would rather do one of them (and I guess you know already which one I'm talking about).
Well, I don't know whether my long post was really the help you were looking for. I'm sorry for being very critic with the investments you've chosen - but unfortunately the lobby for these products is strong and very lucrative for the sellers.
Best regards,
Woody