Retirement provision for the self-employed: no employer, but a plan

The starting point

Employees pay 9.3 percent into the pension insurance, the employer another 9.3. The self-employed pay nothing unless they are compulsorily insured like tradesmen, teachers, midwives, artists or solo self-employed with one client. Whoever pays nothing gets nothing, and basic welfare in old age sits at around €1,000. The goal is therefore to replace 18.6 percent yourself: 20 to 25 percent of net income go into provision, from the first invoice.

The core: an ETF portfolio

A world ETF savings plan with 15 percent of net, flexible in amount because the self-employed have fluctuating incomes: more in good months, less in bad, never zero. The portfolio stays liquid, is inheritable, costs 0.2 percent. Disadvantage: no tax advantage in the saving phase and the temptation to dip into it in a dry spell. A second broker whose app is not on the phone helps.

The tax building block: Rürup

Contributions up to €29,344 a year are 100 percent deductible. At a 42 percent marginal rate the tax office pays 42 percent of the contribution. As an ETF Rürup without guarantee with costs under 0.5 percent this is the most efficient building block for high earners, with the drawbacks: cannot be cancelled, cannot be taken as a lump sum, annuity fully taxable, inheritable only with a rider. Sensible for the part that is never meant to be touched, around five to ten percent of net.

The safe building block: the state pension

The self-employed can pay voluntarily into the state pension, between roughly €100 and €1,500 a month, or become compulsorily insured on application. Advantages: inflation-protected lifelong pension, entitlement to a reduced earning capacity pension after five years with three compulsory years, rehabilitation, survivor pension. Return around two to three percent real, so below the ETF but without market risk. Sensible as a basic building block with €300 to €500 a month, especially for the disability cover that otherwise only expensive private insurance offers.

The most important building block: disability cover

Without cover, illness takes everything: income, provision, health insurance contribution. Occupational disability insurance with €1,500 to €2,500 of pension to 67 costs €60 to €200 a month depending on job and age. Plus daily sickness benefit from day 43, because the statutory insurer only pays sick pay to the self-employed with an optional tariff. Only when that stands does retirement provision make sense; otherwise the first long illness sells the portfolio.

The coming obligation

The federal government plans a mandatory retirement provision for the self-employed who are not in a professional pension scheme: a choice between the state pension and a private provision that is insolvency-protected and seizure-proof, with an opt-out for those already providing. Whoever pays into Rürup or the state pension today will presumably comply. A bare portfolio probably will not suffice. That is a reason not to postpone the tax building block.