Mistrust in retirement — protection in uncertain times
The pension gap is an ongoing issue. Without private pension provision, retirement can become a trap of poverty. It is clear that conservative forms of savings or stocks alone are not enough to guarantee a secure additional income in old age. Complementary investments in selected tangible assets are a possible option for sufficient wealth diversification, which allows private investors to look into old age with more serenity.
Legitimation problem of the pension system
The state pension system is unable to keep pace with rising living costs. According to one latest study by the German Institute for Economic Research (DIW) Are the minimum contribution periods increasing in order to receive a pension in the amount of basic insurance. In 2018, an average earner had to pay 27.4 years into pension insurance in order to achieve the level of basic insurance. As a reminder, the basic insurance in Germany in 2020 is 432 euros plus the cost of the apartment for one person and 778 euros plus the costs of the apartment for a married couple.
According to DIW simulations, this minimum contribution period will increase until 2045. Especially in cities and metropolitan areas with increasing housing costs, the statutory pension will not be sufficient for a decent life in old age. A summary from DIW Berlin: “If politicians do not ensure that people who have worked for many years and have paid contributions receive a pension well above the subsistence level, the pension insurance could have a legitimation problem.” The mistrust is therefore justified.
Falling pension levels by 2030
Pension levels are an important indicator in the debate. Here, the standard disposable pension is divided by the average disposable income. The net pension level before tax of 48% in 2018 means that, on average, a pensioner has a pension of just under half of their income. Pension levels have been falling for many years, reaching 46% in 2020 and expected to 43% in 2030. Although the federal government promises measures that should lead to an improvement in pension levels, relying on them alone is not a recommended strategy.
Private retirement planning is a must — even for 50+
Private retirement planning is more important than ever and the earlier private investors start, the better. Some popular forms of investment in the past, such as savings accounts or investments in government bonds, are no longer effective: Here, inflation is already eating up sparse interest rates several times today.
In the past, stocks proved to be a profitable investment over the long term. However, stock market movements, and financial system fluctuations cannot be predicted or predicted over the long term. Equity investments are therefore only conditionally suitable for retirement provision. Tangible assets such as real estate On the other hand, they have a specific asset relationship and promise very good returns, particularly for long-term investments. Even for people who have already passed the age of 50, tangible assets are a good way to make provisions for retirement. In Germany, real estate prices have been rising for many years, and high-quality real estate is considered a safe investment — even during and after the corona crisis.
Real estate remains sought after
The corona crisis is also having an impact on the real estate market: According to the Federal Statistical Office, residential property prices in Germany have risen by an average of 6% over the year. The prices of detached and two-family houses in the largest seven German cities rose significantly more, as much as 6% in the second quarter of 2020 alone. The reasons for the price increases: Many investors like to invest in secure, high-quality tangible assets in times of crisis, and the desire to own a home remains high.
Experts agree that real estate prices in Germany will continue to rise. High land prices in particular will result in higher real estate prices in the next decade. Because land in the most popular city locations is becoming scarcer. The location is absolutely decisive for increasing the value of the property. In sophisticated and growing cities such as Berlin, Frankfurt, Hamburg, Munich or Stuttgart, the supply of real estate will not be able to keep up with demand.
Investing in tangible assets with blockchain technology
Many private investors ask themselves whether they should invest in their own property themselves and then rent it out. However, the effort involved is high and as a layperson, you are quickly overwhelmed: The spectrum ranges from choosing the right property in a good location, negotiating with the seller and financing talks with banks, to searching for and worrying with tenants, to necessary ongoing investments. Many investors therefore appreciate the services of professionals who relieve them of these worries.
But the transformation and digitization of the financial market also offers new paths for those who want to be more proactive in determining their wealth creation strategy: Blockchain technology offers opportunities to invest in digital shares and benefit from the increase in value. In addition to real estate, this also applies to others illiquid tangible assets such as art or classic cars, which until now have only been reserved for an exclusive group of buyers. Digital investment platforms offer retail investors the opportunity to invest in tokenized assets with low initial amounts and thus build up their diversified professional portfolio.
