Pension & Retirement Savings: Close Your Pension Gap in 2026

Pension and retirement savings: the short answer

In Germany the state pension is designed to cover only part of your standard of living. The pension level sits at 48 percent: someone who earns the average for 45 years gets, net before tax, just under half of the average net income of a working person (as of 2026). On 1 July 2026 the current pension value rose from 40.79 to 42.52 euros, a pension adjustment of 4.24 percent (as of 2026).

The standard pension, 45 years of contributions at average level, is 1,913.40 euros gross and 1,677.10 euros net before tax since July 2026. The real average old-age pension, at a payout of 1,195 euros, is clearly lower (as of 2026). Right between the two sits the question many people ask: is that enough to keep the lifestyle you are used to? Often not.

To replace that money in retirement you need to know and close your pension gap. This guide shows what the state pension really pays, how to calculate your gap, and which building blocks help: a workplace pension, Riester, Rürup, an ETF savings plan and the new rules from 2027.

What the state pension really pays in 2026

Your pension is the sum of your earnings points multiplied by the current pension value. Earning exactly the average income for a year earns you one point. The average income for 2026 is provisionally 51,944 euros a year (as of 2026). Every year 18.6 percent of your gross salary flows into the pension insurance, shared equally by employee and employer (as of 2026).

Two figures steer the system:

(as of 2026)

The average pension lies well below the standard pension because few people earn at the average level for 45 full years. In the pension stock at the end of 2025 the average payout of old-age pensions was 1,195 euros (men 1,449, women 994). In gross terms this was 1,354 euros, with the eastern states at 1,585 euros above the western states at 1,297 euros (as of 2026).

The gap of around 500 euros between men and women does not come from a deduction in the pension formula but from the insurance biographies: lower earnings, part-time work and fewer contribution years. Anyone who pays in for 45 years or more reaches a pension much closer to the male level.

Retirement age: retirement at 67, pension at 63, deductions

For cohorts born from 1961 onward the standard retirement age rises step by step from 65 to 67, by two months per cohort. Those born in 1964 or later reach the deduction-free standard pension only at 67.

(as of 2026)

Three pension types matter. The standard old-age pension is deduction-free from the standard retirement age. The pension for especially long-term insured needs 45 contribution years and is deduction-free, but in practice starts at 64 to 65, not 63, depending on your cohort. The pension for long-term insured (the pension at 63 in everyday language) needs 35 years, is possible from 63 and costs 0.3 percent per month before the standard retirement age, permanently (as of 2026).

An example: someone born in 1963 who retires at 63 takes a deduction of 13.8 percent according to the German Pension Insurance. Between 63 and this cohort's standard retirement age (66 years and 10 months) lie 46 months; 46 times 0.3 percent gives 13.8 percent. Retiring early costs real, permanent money, but sometimes pays off when you draw the pension longer and in good years.

Worth knowing: the reduced earning capacity pension covers the risk of being unable to work long term. Its average payout was 1,091 euros at the end of 2025. The crediting period helps here: those affected are treated as if they had kept working until the regular retirement age (as of 2026).

How big is your pension gap?

The pension gap is the difference between the income you need in retirement and what your retirement savings deliver. The calculation runs in two steps:

1. Set your target income. A common guideline is 70 to 80 percent of your last net income. The Commission for Old-Age Security defined a net replacement rate of at least 70 percent as the target for average earners in 2026 (as of 2026).
2. Build the difference. Subtract your expected state pension (from your pension statement or the DRV pension calculator) from your target income. What remains is the gap.

An example (worked model). An average earner has a net income of about 3,100 euros today. A target of 70 percent gives a target income of about 2,170 euros. The standard pension of 1,677 euros net before tax delivers less, leaving a gap of about 490 euros a month. Anyone with 40 rather than 45 points or below-average earnings has a correspondingly larger gap.

(as of 2026)

The pension gap calculator on this page takes you through the calculation step by step and shows your target path. Do not plan with the full net amount: pensions are taxed on a deferred basis, and assuming nominally constant amounts understates the loss of purchasing power through inflation.

Closing the pension gap: a savings plan and compound interest

Once you know the gap you need a savings plan. The lever is compound interest, which only really works over decades. Starting early is the cheapest factor in retirement provision, and the only one you cannot make up later.

Example: investing 100 euros per month until age 67 gives, depending on start age and return (worked model at 4 percent nominal):

(as of 2026)

Starting at 25 instead of 35 means paying in only ten years longer (about 12,000 euros more) yet ending up with about 52,000 euros more. The difference comes almost entirely from compound interest.

What you need each month follows from the gap and your time horizon. To finance an extra pension of 300 euros a month via the 4 percent rule you need capital of about 90,000 euros. Over 25 years that corresponds to the following saving rate depending on return (worked model):

(as of 2026)

Private provision: the building blocks compared

The state pension is the base; private and workplace provision fills the gap. Four instruments matter: Riester, Rürup, the workplace pension (bAV) and the ETF savings plan.

(as of 2026)

Riester and the reform from 2027

In 2026 the old Riester rules still apply: basic allowance 175 euros, child allowance 300 euros (185 euros for children born before 2008), minimum contribution 60 euros (as of 2026). Since 29 May 2026 the Altersvorsorgereformgesetz (Federal Law Gazette 2026 I No. 156) has been promulgated. From 2027 the subsidy is rebuilt: the basic allowance becomes contribution-based and reaches 540 euros, the child allowance 300 euros, the minimum contribution rises to 120 euros. New return-oriented products arrive: the retirement savings account and a standard account with an effective cost cap of 1.0 percent (as of 2026).

Existing contracts continue under the old rules until the payout phase begins. Switching is an irrevocable choice for the new rules; nothing changes automatically (as of 2026). Whether Riester pays off depends strongly on your own contribution, the allowances and the costs of your contract. The Verbraucherzentrale puts it simply: the more the state pays in and the shorter the term, the more it is worth it. The lower the income and the more children, the higher the subsidy per euro.

Rürup and the workplace pension

The Rürup pension is a pure tax advantage without allowances. In 2026 up to 30,826 euros (61,652 euros for joint filing) can be deducted as special expenses, at 100 percent (as of 2026). Caution: your statutory pension contributions count against the same cap, so someone earning 60,000 euros has only about 19,666 euros of room. At retirement in 2026 the pension is 84 percent taxable, rising to 100 percent by 2058.

The workplace pension converts part of your salary. Since 2022 the employer must add at least 15 percent to the converted amount (as of 2026). Up to 4,056 euros a year (4 percent of the contribution assessment ceiling) is free of social contributions and up to 8,112 euros free of tax. The entitlement belongs to you from the first euro, even if you change employers.

ETF savings plan: the cost advantage

If you want flexibility, low costs and transparency, a global stock ETF savings plan often comes out ahead. Over the long term Finanztip assumes a nominal return of around 6 percent a year and recommends ETFs with a cost ratio below 0.3 percent (as of 2026). Costs decide: 2 percent a year can eat half of your wealth growth over 20 to 30 years.

Rather than setting your equity share by age alone, base it on your ability to bear losses (as of 2026). If you can financially and emotionally bear a 20 percent loss, you can hold around 40 percent in stock ETFs, with 50 percent or more up to 100 percent. If price swings worry you, lower the equity share, not the saving rate.

New rules 2026 and 2027: what is decided and what is only planned

The retirement space is moving. The key is to separate what is decided from what is planned.

Decided: The Altersvorsorgereformgesetz (BGBl. 2026 I No. 156) with the new subsidy and the new account products from 2027 is in force. So is the safeguard line of 48 percent for the pension level until 2031 (Rentenpaket 2025, law to stabilise the pension level). The Mütterrente III (36 months of child-raising credits also for children born before 1992) applies from 1 January 2027 and is paid from 2028, half a pension point (about 20.40 euros) per child (as of 2026).

Planned, not yet law: The Frühstartrente (10 euros per month and child from age 6 to 18) was debated in first reading in the Bundestag on 25 September 2026, with a planned start of 1 January 2027 (as of 2026). A statutory capital pension is proposed by the Commission for Old-Age Security (an additional contribution of up to 2 percent); no law exists. Building your own plan on either carries political risk.

Taxes and withdrawal in retirement

In a free brokerage account the withholding tax of 25 percent plus solidarity surcharge applies, effectively 26.375 percent (as of 2026 EStG, VR)). The saver's allowance of 1,000 euros (2,000 euros for couples) covers income up to that amount; a valid exemption order is essential, otherwise the bank withholds the tax. Stock ETFs with at least 51 percent equities get a partial exemption of 30 percent.

(as of 2026 EStG, VR))

For withdrawal the 4 percent rule serves as a guideline: take 4 percent of capital in the first retirement year and adjust it annually for inflation. Historically this usually lasted over 30 years in backtests, but it is not a guarantee. A nominally constant pension loses purchasing power every year; overall inflation was 2.9 percent in August 2026 (as of 2026).

Checklist: check and close your pension gap

• Find your current net income from your last payslip
• Set your target share (70 to 80 percent as a range)
• Calculate your target income in retirement
• Check your earnings points via your pension statement and note the expected pension
• Build your pension gap: target income minus expected pension, with the pension gap calculator
• Check your basic pension entitlement: 33 years of basic pension time, earnings between 30 and 80 percent of the average
• Order the provision building blocks: workplace pension first, then Riester or an ETF plan depending on your situation
• Set a saving rate and set up a standing order
• File an exemption order so the saver's allowance applies
• Account for inflation and review the plan once a year

Common mistakes in retirement planning

1. Confusing the standard pension with your own. The standard pension of 1,913 euros assumes 45 full years at average level, while the average old-age pension is 1,354 euros gross. Planning optimistically hides the gap.
2. Mixing gross and net amounts. The payout is the amount after deducting health and care contributions. Planning with the gross amount overstates your retirement income by over 100 euros a month.
3. Starting late. The first ten years are the most valuable for compound interest and cannot be made up.
4. Choosing products with high costs. High effective costs eat the return. Over long periods a cheap ETF plan usually beats an expensive insurance contract.
5. Assuming the pension level stays forever. The 48 percent only holds until 2031. For planning to 2040 the DRV projects a net pension level of about 46 percent and a contribution rate above 20 percent (as of 2026).

FAQ

The most common questions on pensions and retirement are answered right here; the answers above go into more detail. To start with your own numbers, use the pension calculator (state pension), the pension gap calculator (gap and target path) and the compound interest calculator (the advantage of starting early).