Retiring at 63: What the Early Exit Costs
Few phrases persist as stubbornly as "retirement at 63". Two entirely different things go by that name, and confusing them costs people five-figure sums every year. One version is free of deductions; the other costs a permanent 14.4 per cent. Which applies to you is decided solely by the number of your qualifying years.
Two pension types, one misunderstanding
The pension for long-term insured requires 35 qualifying years and is available from 63 — but with the full deduction up to the standard retirement age. The pension for especially long-term insured requires 45 qualifying years and is free of deductions; for everyone born in 1964 or later it starts at 65, two years before the standard retirement age of 67.
The colloquial "retirement at 63" actually refers to the second variant. Its starting age has not been 63 for a long time: for the 1952 cohort it genuinely was 63, but since then it has risen in stages. Anyone in their mid-fifties today should know the exact threshold for their cohort — the pension calculator displays it as soon as you enter your age and contribution years.
What the 45 years are worth
Take someone with 40 pension points, born in 1965, with a standard retirement age of 67. With 45 qualifying years this person can retire at 65 with no deduction at all and receives 40 × €42.52 = €1,700.80 gross. Two years earlier, without losing a cent — over 24 months that regulation is worth roughly €40,800 in additional pension received.
The same person with only 38 qualifying years would have to wait until 67 or accept a deduction for leaving earlier. Starting at 65 would mean 24 months × 0.3 per cent = a 7.2 per cent deduction: €1,578.34 instead of €1,700.80, so €122.46 less — for the rest of their life. Over 20 years of retirement that adds up to nearly €30,000.
The full deduction: starting at 63
Anyone who actually stops at 63 with 35 qualifying years meets the maximum deduction of 14.4 per cent — 48 months at 0.3 per cent each. €1,700.80 becomes €1,455.88. The loss is €244.92 a month, or €2,939.04 a year. Net the difference is somewhat smaller, because health insurance, care insurance and tax all fall too, but the order of magnitude stands.
A second effect is often overlooked: in the four years between 63 and 67 you accumulate no further pension points. At an average wage that would have been roughly 4.0 points, or €170 of additional monthly pension. The early exit therefore costs twice over — through the deduction and through the contribution years forgone.
Does the early exit still pay off?
Arithmetically, surprisingly often. Someone starting at 63 draws a pension for 48 months that the late retiree does not receive at all: 48 × €1,455.88 = €69,882.24. The higher pension has to catch that head start up at €244.92 a month, which takes around 285 months — just under 24 years. Break-even therefore falls beyond the age of 90.
Anyone looking purely at the total sum does statistically well with the early start. It looks different when the pension is tight: a monthly amount permanently €245 lower can become a real problem in old age, when health and care costs rise. And the deduction later reduces any survivor's pension as well.
Qualifying years and compensating payments
For the 45 years, compulsory contribution periods from employment and self-employment count, as do child-raising and care periods, military and civilian service and periods of receiving sick pay or transitional benefits; unemployment benefit in the final two years before retirement is deliberately excluded. For the 35 years the yardstick is more generous — schooling, university and periods of unemployment count as well, so many people meet that qualifying period without realising it. From the age of 50 you can also make compensating payments to buy back a planned deduction; they are deductible in the year of payment as a retirement provision expense. The table in the pension calculator shows exactly what is at stake for every starting age from 63 to 70.