Rediscovering Early Retirement at 45: Steer Clear of Frivolous Spending! - Achieving retirement at age 45 following 45 years of employment: bewise with your funds!
In Germany, early retirees who choose to continue working are subject to taxation on their additional earnings, just like any other income. However, there have been recent discussions and proposals to ease the tax burden on such earnings for pensioners.
As of 2025, new proposals have been under consideration to allow pensioners to earn up to 2,000 euros per month tax-free on additional income alongside their pension benefits. The detailed rules for this have not been fully finalized yet, with implementation expected to progress after summer 2025.
Currently, earnings from work after early retirement are added to taxable income and taxed according to Germany's progressive income tax rates, which range from 14% to 45% based on income levels. The pension itself is also taxable but benefits from different taxation rules.
The pension contribution rate will slightly increase by 2027, but this mostly affects active contributors, not pension recipients. The details on combining partial pension draws with working income are flexible but still taxable under the new rules.
It is essential for early retirees who continue to work to understand the tax implications. Pension income is partly taxable, depending on the year of retirement and amount. Additional earnings from working after retirement are fully subject to income tax under normal progressive rates.
However, the proposed reform aims to reduce the tax impact on moderate additional income. Individuals retiring early but continuing to work in Germany should expect to pay income tax on earnings but may soon benefit from improved tax exemptions due to upcoming reforms. They should confirm with tax advisors or pension authorities for the latest personalized information and how these reforms apply to their case.
When considering early retirement, it is worth considering whether one will continue to work full-time, go part-time, or simply enjoy retirement. The German Pension Insurance (DRV) offers extensive advice on early retirement. It is a good idea to talk to one's boss about early retirement and employment contract termination.
The coalition wants to mitigate the tax burden on early retirees by making 2000 euros tax-free for those who continue to work (active pension). However, it is unclear whether this tax-free allowance applies to deduction-free early retirement.
It is important to note that even with deduction-free early retirement, one pays two years less into the pension fund if one stops working two years earlier. Those who continue to work despite early retirement pay a higher tax rate on their additional income due to the progression of taxation.
Terminating employment contracts for early retirees could be considered age discrimination. Some employment contracts automatically end with retirement, but this is not the case for those who voluntarily retire early. Those who do not apply for early retirement are giving up a lot of money, as they can continue to work and receive their salary, as well as their pension. The additional entitlement points are missed due to early retirement, which could result in a loss of around 80 euros in pension per month for someone who currently earns an average wage.
After two years of work plus early retirement, one would receive the same old-age pension as if one had waited until the normal retirement age. Singles who work after early retirement can have deductions of around 40% from their additional income due to taxation.
In conclusion, while early retirees in Germany pay income tax on additional earnings from working post-retirement, reforms are underway to provide more favorable conditions, potentially exempting up to 24,000 euros annually from income tax for retirees, starting imminently or soon after 2025.
- The proposed community policy in Germany for active pensioners might allow up to 2,000 euros per month tax-free on additional income, making personal-finance management for early retirees who choose to continue working easier.
- Current taxation on additional earnings from work for early retirees in Germany follows the progressive income tax rates, but discussions and proposals suggest that vocational training and personal-finance education could help reduce the tax burden on moderate additional income for pensioners.
