More and more people are opting to take early retirement at 63 in Germany, almost three years before the statutory retirement age.

More people taking earlier retirement in Germany

An increasing number of people in Germany are ready to give up their jobs and take early retirement at 63, according to new statistics published by the Deutsche Rentenversicherung (German Pension Fund). 

Currently, the retirement age in Germany is 65 years and 11 months. This will reach 67 by 2031. Exceptions are made for anyone who has made pension contributions for 45 years, making it possible to retire at the age of 63 without incurring the financial penalties early retirees usually face, a rule which was only adopted in 2014.

Early retirement scheme costs German state billions of euros

According to the German Pension Fund, at the end of July 2022 there were already 1,99 million people in Germany who were claiming their pensions at 63. This is 400.000 more people than was expected when the early retirement policy began in 2014.

In the past year, 26,3 percent of all new pension claimants were taking retirement at 63, increasing costs of the “Retirement with 63” pension scheme for the German Pension Fund. In July the pension fund paid out 3,4 billion euros for this scheme alone. Last year’s new applicants received an average of 1.644 euros per month in western federal states and 1.350 euros in eastern Germany.

In Germany, state pensions are funded by mandatory contributions to statutory pension insurance benefit (RV). These must be paid by anyone working in Germany (and many self-employed workers as well), with each employee assessed based on annual earnings. Everyone must contribute 18,6 percent (employer and employee each bear a 9,3 percent contribution) of their net salary.

How does retiring early work in Germany?

It is possible to retire early in Germany, as long as you have made contributions for at least 35 years. If you choose to take early retirement, the number of months you have left until you reach retirement age are used to calculate a reduction in your pension entitlement. This is what is known as the age factor (Zugangsfaktor) and results in around a 3,6 percent reduction in your pension entitlement for each missing year.

If you wish to keep working for longer, you can also choose to retire later; the positive impact on your age factor and ongoing contributions has the potential to substantially increase your pension benefits.