Private pension and the 5 tips you need to keep in mind.
I'm Thorsten Wittmann, welcome to today's episode of fascination freedom.
Later on I will reveal in which country I am today and as usual with some impressions.
Today's topic might not be spectacular but it's very important: private pensions.
So please watch it till the end and pay attention to the tips so you don't have to learn it the hard way.
It's a very important topic. I know for sure
I won't win a popularity contest with this topic, but it's very important.
That's why we have a deeper look on private pensions. In order to differentiate
we have to know the three types of private pensions or pillars rather.
It's similar for Germany, Austria and Switzerland. First one is the statutory.
This includes the statutory pension, official's pension and professional pension schemes.
Then there is the occupational pillar. Everything related like the occupational pension
there is different implementation paths for. That's not our topic today.
But the private pillar is and what we can do with it. Let's jump right into it.
No. 1: "tackle instead of hoping!" Follow up with the topic!
I don't want you to make it the center of your life,
but please follow up with it. It's very important.
It decides whether you're going to buy groceries at the discount store
or if you go to our favourite island Mallorca where we can buy from the organic farmer next door.
Financial Education is freedom! I share with you my own opinion,
which is financial freedom beats private or general pension. Because it's only one part of it.
If we deal with financial freedom we know what we have to do and how to manage our money.
Not only little pension schemes
and running to the bank for a life insurance which is rather bad to have.
We come to that later again, so that we really follow up with the topic.
And therefor financial education is really important.
It makes us free. We can design our life the way we want it to be.
And pension is just a by-product or in quotes just a "waste product"
because it's regulated. Because many people for whom pension is important believe
that pension has to write on a product
like the statuary paths, etc. They don't really deal
with the plenty of options. And this brings us to tipps no. 2:
"Scissors beats paper!"
This stands for the difference between real value and monetary value.
Historically speaking monetary value became worthless due to inflation or currency reforms.
Life insurances, bank deposits or home savings became worthless or have lost most of its value.
Over the last century some generations in Germany and Austria
have lost all of their money. By the way, we witnessed several
perios of expropriation when states had their backs to the wall.
This might even effect the real estate sector. But real estates belong to real values
and are still a better option than monetary values.
Right now lots of money is pumped into the economy. And if the real effects show up
a high inflation might follow, much higher than in the past.
It might lead to the crash and nonexistence of the Euro currency within
the next 10, 15, 20 years. Considering that the Euro doesn't exist for too long and that
we already have massive problems we should really
consider whether we want to be invested in it with our money.
Most of people do it anyways. Simply because banks, insurances and politics
recommend to do so. That's why you should remain skeptical.
Historically speaking nothing worked on a long term. If it's such a great investment why
do most people still run like a hamster in a wheel?
Think about it. There is many possibilities. In our courses we train
different ways. For example precious metals like gold or silver
which you can diversify in precious metals, or areas like real estate, shares, art,
there's also diamonds, arable land, timber and forest industries,
agriculture where you really invest in the production like fruits.
You can invest in foreign currencies from stable countries, photovoltaics,...
It's unbelievable how many options there are to ensure real security.
And that is a stable and rock solid pension scheme.
The effect is when dealing with it,
not participating in all the unnecessary consumptions instead saving money
you can live a life in freedom. No. 3 which is a rather German tip
but applicable for Austrian and Swiss people: "Beware of Rürup and Riester"
Two special ways of pension schemes in Germany you can choose
and that come with tax incentives. Both have disadvantages and that's
why I dont use any of them and also won't in the future.
For the Rürüp pension it works like this: Each Euro you give into is permanent.
You can't cancel as contracts are non-terminable. That is the condition
in order tomake Rürüp work. And let's see why it's not very advantageous
during the retirement. It's very critical.
You have zero flexibility.
You're completely at the mercy of the provider. Some providers don't even offer the possibility
to transfer the contract to another provider. As you can see zero flexibility.
If things don't go well as expected you'll have a problem
when facing better opportunities. It's very restricted.
And tax must be paid on it. Tax benfitsthat you enjoy now
face a taxation afterwards.
Now the Riester pension. Under certain circumstances that might
be interesting in general. At least you have the possibilty to
pay out some part of it. But here is the BUT.
Instead you can invest in real value as mentiones in no. 2. They're much more advisable.
But the problem is and let's take a share savings plan for example,
the provider can barely invest in shares or only do it on a small scale since they have
to ensure the guarantee, 100 percent of the paid in shares. So what do they do?
For investments with fixed interest rates, and there is only little interest rates,
they have to accept a lot in order to get to the one hundred and guaranteed later on.
That's the problem many Riester contracts have. Having a share savings plan
you might think to be investes in real value, but in reality you're not.
Instead it's fixed interest rated and then you face
the problem as mentiones in no. 2.
And that's the problem with these two kinds of contracs. Think carefully
about it and check if the tax benefits will pay out.
The situation might get tough, less with Riester and more with Rürüp.
No.4. "No retirement!"
Avoid classical forms of retirement, such as retirement insurance as they have
different and complex disadvanteges. They also have the low flexibility.
Especially two disadvanteges that we have to look into. One is, that you really have to get old as life insurer calculate conservatively.
They calculate their own profits, too.
And if you grow very old, they will have a problem.
On the mortality table they go relatively high. You can calculate.
If you have 100.000 Euro invested how long do you have to wait
until the normal pension will be paid out.
Usually this takes a lot of time. You have to grow really, really old.
The mortality table works rather against you. And number two: If you get a pension now
how high is the inflation rate in a couple of years? Will the Euro still exist in 5 0r 10 years
after all these problems we have faced already and
the near crash that we had? Are we going to have it still in 5 or 10 years?
Which currency will we have? What will the conversion key be?
Will the debts of EU countries rise up higher up to a point
where it gets out of hand and intervention is needed in order to work somehow.
And for this reason only I'd be very careful, I got to say.
Imagine in 5 years having a higher inflation
of let's say 10%, linearly speaking we'd only have
half of the purchase power. The 500€ today, which sounds great today,
who knows what purchase power it would possibly have in 5 years.
That is why you should be careful. That's why I am not a fan
of a monthly pension and pension insurance. Stay away from that.
There is better options. Let's have a look on real estate. There's a real value behind.
You can always rent it to somebody, it's a real value not just a piece of paper
which come with little interest rates. Then no. 5:
"Better to start now than later at some point!"
Especially with the compound interest effect, which you might know is exponential.
But if you're missing the last years you might only be at this
point. And that is the problem. The younger you are the easier
it is to build monetary value and financial freedom. That's when you're not used to the consumption nonsense,
because the really important things in life, such as love
freedom, passion, you can only buy them in a limited fashion with money. You can support it a little
but eventually these things come from inside. There is no benefit
in distracting oneself with consumption. Instead take an easy approach in life,
focus on what's essential to your life and
build your own freedom, out of the hamster wheel. Don't surrender to spending sprees.
Keep it easy and simple. And start now.
Not later at some point. I will earn more money later on, that's what many say.
But the monthly costs will be higher, too. You will reach a higher standard, but relatively speaking
you're still in the same hamster wheel as before. Start always today.
Here and now even if it's only a Euro per day that you save.
And that's good for oneself as you
establish a mentality of abundance while putting money aside. You have more than needed and that's what you communicate
everyday once more.
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I'm looking forward to seeing you. And right now I'm in Bosnia and Hercegovina.
Research has brought me here. Let's see some beautiful impressions.
That's Sarajevo. I'm happy you tuned in today.
See you next Friday. I will come up with a great topic. Until then. Yours, Thorsten Wittmann.
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