Forever worry-free: This is how you get a perpetual pension

The prospects for a solid state pension are becoming increasingly bleak – but you can save with small amounts yourself. And like this.

A fortune that never ends – it sounds too good to be true. Or? In fact, with a little patience and a clever investment strategy, it is not only possible for millionaires to have no financial worries in old age and at the same time to build up a thick wealth cushion.

The concept is called perpetuity and is related to compound interest (see video above). You only pay out your interest each month and leave your assets untouched. The perpetual annuity is therefore a private subsidy to your state pension scheme.

Such an additional mainstay is becoming more and more important, because the forecasts for state pensions in Germany look bleak – especially younger workers and low earners have no certainty whether they will have an adequate pension in old age. As early as 2036 – i.e. in 15 years – more than one in five seniors will be at risk Old-age poverty, shows a study by the Bertelsmann Foundation.

But that doesn’t have to be the case: t-online explains how the concept of perpetuity works and how you can use the next 15 years to maintain a high standard of living in old age.

Perpetual annuity is a technical term from economics and describes an ongoing payment in a fixed cycle that does not change your own asset value. Sound complicated? But it is not.

In short: With a perpetual annuity, you can have a fixed amount paid out monthly until the end of your life without your assets falling by a single cent.

The decisive factor is how much money you can save until you retire. Because the secret behind perpetual annuity is the compound interest effect (more on this here).

With the perpetual annuity, you can have your returns paid out monthly or annually, from which you then live. Since you only pay out the profits from your invested capital, the value of your saved capital remains unaffected.

The decisive factor for a sufficient financial cushion in old age is how much money you were able to save in the previous years. The higher this sum, the more income your capital will generate for you.

The time component is also decisive in perpetual annuity. Because: If you invest your assets for the long term without paying out the return, your assets will increase further. It is therefore worth putting aside small yields at a young age and saving in a disciplined manner.

Before you can start putting money aside for your lifetime annuity, you need to determine your monthly savings rate and die Amount that you will later need at least as a monthly supplement to your state pension. To find out, you should answer the following question for yourself:

How much money do I need to live on a monthly basis?

Here you can look at your state pension and see how it could cover your current expenses. The difference could be the amount of your perpetual annuity.

What interest or return can I expect?

If you finance your perpetual annuity with an investment product, you should look at the average interest or return this product has generated over the past few decades. For orientation: If you had created a 20-year savings plan on the Dax index between 1950 and 2020 (e.g. with a Dax ETF), you would have achieved an average return of 8.7 percent according to the Deutsches Aktieninstitut. You can use these average values ​​for the products as a guide when calculating your perpetual annuity. However, there is no guarantee of similar returns.

Do I have savings potential in old age?

It doesn’t matter whether it’s caring for underage children or the car loan that is still outstanding – by the time you’re in your mid-40s you probably have more obligations than when you retire. To check what monthly amount you need to live on, you should exclude these obligations from your monthly expenses.