Spending more time with your family, taking care of relatives or just taking some time off work: in Germany, 39.2 percent of employees now work part-time, more than ever before, according to the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB). Unsurprisingly, more than every second woman in employment works part-time, while only approximately every fifth man has reduced hours. Part-time hours, however, mean more than just a reduced salary; they effect the amount of pension a person receives in old age. Because of that, it makes sense to plan the switch to part-time hours carefully. That means working out what your net salary will be, taking account of gaps in your pension and planning your finances in advance!
Working out your part-time net salary
What reduction in hours can you afford? And does that match up with what you want? The Federal Ministry of Labour and Social Affairs provides a very useful tool to help you calculate your net part-time salary if you decide you want to reduce or increase your working hours. It gives you an initial idea regarding how much you can expect to earn working part-time.
Due to Germany’s progressive tax system, reducing the number of hours you work each week could leave you with more money than you might expect. Even though you are earning less, you are also paying fewer taxes.
It is also important to consider what you will do if you need to return to your original number of hours per week. The law can help here: since 2019, workers can work part-time for a limited period and then return to working full-time if they so wish (known as Brückenteilzeit in German).
Find out about your pension entitlements
You can find out from the German Pension Insurance (Deutsche Rentenversicherung) how earning less will affect your statutory pension entitlements. The basic principle is that periods of looking after children are added on, but if you work part-time for a longer period you’ll not only earn less, your pension entitlements are likely to decrease as well. So, it may make sense to reach an agreement with you partner as to how you could make up this shortfall, particularly if it occurred because you had to look after the children you have together.
Plan your finances and make up for shortfalls
The good news is that you can build up your wealth, even in small amounts – despite only having a part-time job. The first step to securely planning your financial future is always to take stock of your current assets. How much money do you already have saved for a rainy day? Do you have any other assets, such as property? Or debts? It is usually a good idea to pay off loans as quickly as possible to save on interest payments.
Make a list of ongoing costs
Then you should take a closer look at your income and expenditure. Having an additional joint bank account can help you and your partner better track your finances. Doing so will increase transparency and simplify the sharing of joint costs, such as rent, insurance or food. By listing your current outgoings, you’ll be more likely to find areas in which you can reduce spending to make savings. Digital financial planners are also a useful tool for this. They help you sort income and expenditure from your account by category, just as you might with a written budget. It means you can always keep an eye on your budget – even on your smartphone.
Build an emergency fund
Your number one savings goal should always be to have financial buffer, in case of emergency. As a rule of thumb, you should always have enough money put aside so you can survive for at least three months – for example, if you lose your job. You also need to think about items you’ll need to pay for in the near future, such as a new car, a holiday or the costs of caring for a relative. This money is best kept in an instant access savings account – that way your money is safe and secure, and you can access it immediately in an emergency.
Remember your pension shortfall
When it comes to pensions, you should never accept a shortfall. Work out for yourself how much money you’ll need for your retirement – now compare that with your pension statement. How high is your personal pension gap, taking into account those periods in which you weren’t able to earn much money? What options are available to you to make up the shortfall? In Germany, you can top up your retirement provision with a Riester bonus – even when you’re on parental leave. You should definitely ask your employer about the company’s pension scheme and take advantage of capital-forming benefits (vermögenswirksame Leistungen).
Set up a savings scheme
And then get started – with a concrete savings scheme account (known in German as a Sparplan). From as little as 25 euros a month, you can pay into a savings fund, for example, and little by little build up your savings. You can also put this money towards your retirement savings. Whether it’s share, funds or insurance products: you should only invest in products you understand properly. And you should not forget to consider any additional fees involved and remember to do a comparison of all the offers available.
