How do I find out whether company deferred compensation is worthwhile?
Company salary conversion is a fairly complex form of saving for retirement. You should not use it without first checking whether it is worth it for you. It is best to base your return expectations on an investment portfolio with ETF index funds, also known as a “slipper portfolio”.
This is why an ETF index fund is particularly suitable for retirement planning:
- It can be implemented without much effort.
- It can be fully inherited and capitalized.
If in doubt, get sufficient basic knowledge from an advice center at the consumer advice center, from a fee-based advisor or from Stiftung Warentest.
All other forms of pension provision, such as private pension insurance, Riester or Rürup pension or company salary conversion, must be measured against this.
Whether salary conversion makes sense and offers added value as part of your overall retirement or investment strategy depends primarily on these variables:
- employer subsidy,
- Income,
- for married couples, joint income,
- all income at retirement age,
- health insurance status,
- Duration until retirement or even
- guaranteed or plausible return on the product offered by the employer.
These variables can only be taken into account in a calculation as a model. In this way you can find out whether the guaranteed return of the financial product used offers a better pension provision due to the tax and social security effects.
Because if these variables change, for example due to marriage, divorce, occupational disability or unemployment, this will affect the performance and return on salary conversion without you being able to influence it later.
In order to make a sensible decision for or against deferred compensation, you should have a model comparison calculation made that compares the net expense and net payout. Only then can you see the added value or the loss compared to another product for retirement provision. The level of inflation should also be taken into account in this consideration. Without a model calculation, company salary conversion is similar to a surprise bag without a model calculation. In this checklist you will find important points that can influence your decision.
Also ask yourself whether the contractual and employment law conditions that are entered into with company deferred compensation actually fit your financial life plans. You should define for yourself what an attractive additional performance or additional return means for you. This varies from person to person. The total return of the company pension option should be at least as high as the expected return of an efficient free investment portfolio with index ETFs.
Good to know: Consumers who come to the consumer advice centers for retirement planning advice are always advised by their employers or the intermediaries commissioned by them only the savings benefits in the savings phase up to the start of retirement are calculated. In not a single known case was consumers given a model calculation of the net payout after deduction of income tax, health and nursing care insurance and the offset of the lower statutory pension.
