What’s completely missing are the amounts you can contribute up to €1,800 even without the subsidy. These are fully tax-deductible as retirement savings contributions—depending on your personal tax rate during the savings phase—and can result in significant additional tax refunds (reinvesting is probably a good idea). If you do it this way, your calculations will definitely shift (whether you have a child or not), in some cases quite significantly. I spent about 2 hours using ChatGPT to compare countless variations of the AVD against each other and against a simple MSCI World savings plan in my own portfolio, and what can I say: the AVD wins—with the exception of one calculation based on an assumed return of about 3%—virtually every time.
You just have to be clear about what “earmarking” means for retirement planning; purely from a return perspective, an AVD should actually be an absolute no-brainer if you’re consciously choosing to save exclusively for retirement.
You just have to be clear about what “earmarking” means for retirement planning; purely from a return perspective, an AVD should actually be an absolute no-brainer if you’re consciously choosing to save exclusively for retirement.
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•@Get_Rich_or_Die_Tryin And to take it to the absolute extreme: you could claim up to a maximum of €6,840 per year as retirement savings contributions for tax purposes. If those funds were also invested there, the tax refund would be taken to a whole new level. Advantage: You can withdraw this “unsubsidized” portion in full at the start of your retirement (theoretically—though based on my calculations, this isn’t practical; however, if you’d like to have a large lump sum, it does make sense) and convert only the remainder (or, alternatively, withdraw another 30% of the “subsidized” capital in a lump sum at the outset) converted into an annuity (not recommended in my opinion, since it’s a life annuity—meaning no inheritance upon death, etc.) or transferred to a payout plan.
For the non-subsidized portion, the well-known 12/62 rule presumably applies; that is, with a minimum term of 12 years and the earliest pension start age of 62, half of the difference (i.e., 50% of the profit) is taxed upon withdrawal.
For the non-subsidized portion, the well-known 12/62 rule presumably applies; that is, with a minimum term of 12 years and the earliest pension start age of 62, half of the difference (i.e., 50% of the profit) is taxed upon withdrawal.
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@Get_Rich_or_Die_Tryin That's right, I deliberately didn't factor in the tax refund during the savings phase. It's briefly mentioned at the bottom of the post. It only pushes the threshold up, never down. So my numbers are on the conservative side. For those who earn well and reinvest the refund, the outlook is even better. That lines up with your conclusion.
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@Codeandcapital You should figure out what this means in terms of your tax refund in combination with the child allowance. I earn a lot. My wife works part-time and doesn’t earn much. Through tax refunds, I get almost as much as I do from the child allowance. But if I apply for the child allowance, the tax refund shrinks. It’s different for my wife. She pays less in taxes and gets a correspondingly smaller tax refund.
So the most advantageous arrangement for us is to have all the child allowances go to my wife, so that I can get the highest possible tax refund.
This is definitely a relevant factor you should take into account.
So the most advantageous arrangement for us is to have all the child allowances go to my wife, so that I can get the highest possible tax refund.
This is definitely a relevant factor you should take into account.
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•@DonkeyInvestor Good point—I hadn't thought of that. I was only counting one person. If the tax office offsets the child allowance against your tax refund, it’s basically worthless to you. For your wife, though, she gets the full amount on top of that. I’ll look into that for us, too—my wife also earns less. Thanks!
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•@DonkeyInvestor It depends on the tax filing status, right? So, with joint filing, isn't the "more favorable tax treatment" test based on your average tax rate? Or am I missing something here?
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•@Migu11 That's what I thought, too. Various computers and AI systems believe that this makes a difference even for spouses who file a joint tax return.
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•@DonkeyInvestor Okay, that's exciting. We'll have to figure out what to do before we make a decision :D
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@Get_Rich_or_Die_Tryin But later on, you can only withdraw 30 percent at a time. That sucks, KB. But I have a Riester pension plan that I haven't contributed to in a long time. That one will be transferred over.
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•@Korni1987 Unless you contribute more than 1,800€ per year. Anything above that is not eligible for the AVD subsidy (even if it can be claimed on your income tax return) and is therefore not subject to the same rules as the subsidized portion.😉
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Yeah, and that's why I have a Netto policy for it. ;)
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