The year you stop work

In The Fellowship of the Ring (2001, directed by Peter Jackson), the first of the Lord of the Rings films, Frodo and Gandalf sit in the dark of the Mines of Moria and Frodo admits he wishes the Ring had never come to him. Gandalf, played by Ian McKellen, gives him an answer that has outlived the film: “So do all who live to see such times; but that is not for them to decide. All we have to decide is what to do with the time that is given to us.” The line comes, almost word for word, from J. R. R. Tolkien’s 1954 novel.

Retirement can feel much the same. You did not pick the year you were born, the pension reforms that came along or the detours your working life took, and none of that can be undone now. What you do get to decide, and it is easy to underestimate, is when your pension starts. In Germany the standard retirement age is 67 for anyone born in 1964 or later. According to the Deutsche Rentenversicherung, the statutory pension insurer, people with 35 years of insurance can retire from 63, but their pension is cut by 0.3 per cent for every month they go early, up to 14.4 per cent in total. That reduction is permanent, so it still applies when you are 80. It works the other way too: for each month you put off drawing the standard pension, it rises by 0.5 per cent.

Retiring early may still be the right call for you, depending on your health, your job and whatever other money you can rely on. It is worth doing the sums before you commit, though, and doing them across your whole retirement rather than the first year. The Daily The distant loss looks at the same pull between relief now and cost later, and our page on private retirement provision explains what a private top-up can and cannot do. The order stays the same: understand where you stand and whether you have a buffer, protect what would be hard to replace, build from there, and review as life moves on.

Uwe is 58 and works as a transport planner for a haulage firm in Bremen. For weeks the break-room talk has been about little else than retiring at 63. One colleague already has a date circled, another is counting down the weeks. Uwe listens and does his own maths quietly. In the early nineties he spent a few years running a snack bar that never really took off, and he paid nothing into the state pension during that time. He has felt a step behind ever since.

On Saturday his son Jannik comes round for lunch, and Uwe tells him about the break-room conversations. Jannik opens his laptop and pulls up the pension start calculator on the Deutsche Rentenversicherung website. Uwe was born in 1968, so his standard retirement age is 67. Going at 63 would mean leaving four years early: 48 months at 0.3 per cent, which comes to 14.4 per cent less for the rest of his life (purely as an example, not a figure for you). “If I hadn’t opened that snack bar,” Uwe says, “I wouldn’t be sitting here doing sums.” Jannik shrugs. “Well, you did open it. What matters now is what you do with the nine years until you’re 67.”

While they wash up, Jannik reads out that from the age of 50 you can ask the pension insurer how much you would have to pay in to make up for an early-retirement reduction. Uwe isn’t sure yet whether he wants to, or whether 63, 65 or 67 is the right age for him. They agree that Jannik will stay for a couple of days between Christmas and New Year so they can go through the figures together. Uwe writes the dates on the calendar on the fridge himself.