Belonging to the middle class is considered a benchmark for a good life for many. But what does this mean in retirement – and how high does the pension need to be?
A middle-class life sounds like an apartment in a good location, a reliable income to support daily life; grocery shopping without constant calculations at the checkout, a restaurant visit on the weekend, a summer vacation once a year, perhaps a car parked outside. In short: the certainty that unexpected expenses won’t immediately become a problem. But what does this mean financially, especially for retirement?
Do You Belong to the Middle Class?
According to the Institute of the German Economy (IW), the middle class is defined by the median income in society. For singles, this is around €1,850 net per month. Those earning between 80 and 150 percent of this value, according to IW calculations, are considered middle class – roughly between €1,500 and €3,500 net.
Further distinctions are made within this range. At the lower end, it’s often about managing daily life. In the middle, there’s room for savings. At the upper end, substantial wealth accumulation is possible. Therefore, to be part of the middle class, one must also achieve an income in retirement that fits this scale.
Given rising living costs and a pension system under pressure from an aging population, it doesn’t take much imagination to realize that few will likely achieve this income level in retirement. “The statutory pension insurance alone will at best still be basic security for old age,” as Chancellor Friedrich Merz (CDU) recently stated. “It will no longer be enough to secure one’s standard of living.”
Hard Cuts Loom with Pension Income
This is also confirmed by current data from the German Pension Insurance. According to this, the average old-age pension is just €1,150 per month. Across all pensioners, the average net payment is around €1,289. Even the so-called standard pension after 45 contribution years with average income amounts to approximately €1,600 net per month.
This means that even those with a long working life without major interruptions often do not reach the income level necessary for a middle-class life. Furthermore, many career paths today are less linear than they used to be. Periods of part-time work, childcare, or lower incomes reduce future entitlements.
At the same time, the cost of living continues to rise. Rent and expenses for health or care, in particular, can weigh heavily in old age. In the healthy years at the beginning of retirement, the financial need can even be higher. “Often, there’s a desire to really treat oneself,” explains pension consultant Thorsten Kullwitz from Hanover. A motorhome, trips to distant countries, or regular restaurant visits are typical examples.
The Pension Gap Matters
For most people, therefore, there is no way around additional provision. Especially those who do not have a paid-off property or do not expect a large inheritance must cover the income loss in old age from their own savings. Experts refer to this as the “pension gap.” This is the difference between expected income in retirement and the expenses needed to maintain the accustomed standard of living.
As a guideline: in old age, about 70 to 80 percent of the last net income should be available. How large the gap actually is depends on the individual case. It is crucial to compare expected income – for example, from the statutory pension – with anticipated expenses. The difference shows how much additional funding is needed.
For example: A single person who last earned €2,500 net belongs to the middle class. To maintain their standard of living, they would need around €1,750 to €2,000 per month in retirement. If their statutory pension is around €1,300, this results in a monthly gap of €450 to €700. At first glance, this seems manageable. However, over the years, the amount adds up considerably. With a retirement period of 20 years, over €100,000 can quickly be missing. The amount is higher the larger the pension gap and the longer one lives.
To close this gap, long-term investment in the capital market is a central component. Stocks, in particular, have proven to be a means of retirement provision. Exchange-traded index funds (ETFs), which offer broad diversification, are considered a cost-effective and flexible option. Regular savings plans also help to compensate for market fluctuations and can be adjusted to changing incomes if necessary.
Incidentally, there is no such thing as “too late”: even those in their 50s can demonstrably still build substantial wealth. At least enough so that the annual summer vacation is still possible in retirement.
