It's obvious, that there is no pension in Europe in 20 years anyway. Demographics are super ugly everywhere. Investing individually is the single way, that works if one does not want to retire in under the bridge. Sadly Germany does not help me caring about my retirement taking 18.6% away and heavily taxing the rest.
The math for pensions is fine as long as the maxes payout isn’t excessive and you don’t start too early. There’s a huge cost difference between a 30k/year pension at 70 and a 45k per year pension at 60.
People also focus on a fixed percentage being returned while ignoring the long term increase in productivity and people’s standards of living. In real terms people in 2025 get way more out of pension systems than people did in 1925, that’s as central to the problem as any changes in lifespan.
I will pay more than €600000 for this “retirement insurance” over my entire career. So with 30k/year pension and living under the bridge at 70 I must have superior health to break even at 90 and benefit from the “insurance” afterwards. Ok, it’s not that bad, there is some disability insurance included. Better than nothing.
The value you get is as an inflation and lifespan hedge. There’s no investment built into the system but the money being paid in by younger workers for people who are 100 is adjusted for inflation that year not whatever the currency was worth 75 years ago when they started. Similarly if you die at 55 you don’t benefit from retirement savings either.
Historically payouts also benefited from rising productivity and populations but those assumptions are breaking down.
> I will pay more than €600000 for this “retirement insurance” over my entire career. So with 30k/year pension and living under the bridge at 70 I must have superior health to break even at 90
Let's see. If you pay 15000 euros per year for 40 years, and get 5% interest, that's 1,800,000 euros at retirement. Even if you held that in cash, a 30,000 euro/year withdrawal would last you to 130.
Not sure how your system works but US SS also covers spouses, widows, disabled workers etc which limit the average benefit.
Assuming full employment every year is a mistake. Also, 5% interest above inflation is an unpredictability good return, especially if you’re assuming it’s a safe investment. The stock market has mostly done well over the last century but start in 1969 and the 40 year return on the S&P 500 was 4.2% after inflation. Things could be far worse over the next 40 years, the 20 year S&P returns have been as low as 0.6% over inflation.
Running the numbers assuming zero taxes and fees is a separate issue.
There must be full employment every year with a mortgage. And I will work 6-7 years of my career just for this mandatory insurance. Sounds stupid and absurd when I read what I wrote. The widow might get something from that. But let me invest half of that in stocks and another half in 2 rental apartments and I will do much better that state. Plus it stays in the family after I die.
At an average of say 4% unemployment rate over your lifetime means the average person is unemployed ~1.6 years out of a 40 year working career. That’s not all in one chunk, but any time not spent working is time not funding a pension or retirement account.
In US SS your spouse can collect benefits when you died at 22 if you had a kid together, you also can collect benefits if your disabled. There’s obviously not 1.8 million in your retirement account to fund such things at 22. Similarly the payout for a married couple is 1.5x if only one of them have ever worked because it’s not a requirement account it’s a social security program, and then 75% if the worker dies. No idea how your system works, but it’s common worldwide for pension programs to do such things.
