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Retirement planning for freelancers

Insurance: Optimize taxes through targeted retirement planning measures.

Updated this week
Banner: Retirement planning for freelancers

A key topic for freelancers: retirement planning. Unlike employees, they must organize their own health and retirement insurance.

Here are the key facts about retirement planning for freelancers:

Tax Benefits of Retirement Planning

A fundamental principle of taxation is: Every income is taxed once. Therefore, completely tax-free retirement models do not exist, nor is there double taxation on the same income.

Retirement planning occurs in two phases:

  1. Accumulation Phase – During employment, contributions are made to a pension plan.

  2. Pension Phase – After retirement, pension payments are disbursed.

There are two main tax models:

  • Tax benefits during the accumulation phase: Contributions are tax-deductible, but later pension payments are subject to taxation. This mechanism is referred to as the tax deferral effect.

  • Tax benefits during the pension phase: Contributions are not tax-advantaged during the accumulation phase, but later pension payments are largely tax-free.

In practice, there are often hybrid models that combine these two approaches.


Retirement Planning Options for Freelancers

Before diving into the details of different retirement models, it’s helpful to take a look at the basic options available to freelancers.

Private Wealth Accumulation

Saving independently and strategically building wealth ensures financial independence in retirement. Over the years, a regular amount can be set aside and increased through smart investments. Real estate and stocks are particularly popular long-term retirement options.

Retirement Planning Through Private Wealth Accumulation

  • In theory, private wealth accumulation is one of the most attractive forms of retirement planning. Building a business, saving regularly, investing in stocks or real estate, and later selling the business can form a financial foundation for retirement.

  • However, unforeseen developments can derail the original plan. Therefore, wealth accumulation should not be the sole pillar of retirement planning.

  • The tax implications vary for private investments. Real estate often offers tax benefits, but rental income is subject to taxation. It is advisable to seek expert advice from professionals such as tax consultants or financial advisors.

  • An important consideration: The value of one’s own business should be realistically assessed. Many freelancers overestimate the market value of their business and overlook the fact that selling without personal involvement can often be difficult.


Statutory Pension Insurance and Rürup Pension

Freelancers are also subject to mandatory insurance in the statutory pension system under certain conditions. In this case, retirement planning is nearly identical to that of employees, as monthly contributions flow into the system.

For all others, the Rürup pension offers a tax-advantageous alternative. It provides significant tax relief compared to other forms of retirement planning.

1. Freelancers Subject to Insurance Obligation

Certain professional groups are subject to mandatory insurance in the statutory pension system. This includes, among others, craftsmen, midwives, educators, artists, and journalists. A full list can be found in the Social Code VI (§2).

Exceptions exist, for example, for those employing employees subject to social security contributions.

Contribution Amount to Statutory Pension Insurance (as of 2023):

  • Reduced Contribution for Startups: Available in the first three years of self-employment, currently €315.70 (West) or €305.97 (East) per month.

  • Standard Contribution: Regardless of income, €631.47 (West) or €611.94 (East) per month.

  • Income-Based Contribution: Contributions can be adjusted based on income, provided an income tax assessment notice is available.Info: Für Künstler*innen, Publizierende, Seelots*innen, Hausgewerbetreibende sowie Küstenschiffer*innen und -fischer*innen gelten besondere Regelungen. Mitglieder der Künstlersozialkasse zahlen nur die Hälfte ihres Beitrags, während die andere Hälfte übernommen wird.

Info: Special regulations apply to artists, journalists, sea pilots, home-based business owners, as well as coastal shipowners and fishermen. Members of the Artists' Social Fund (Künstlersozialkasse) pay only half of their contribution, with the other half being covered by the fund.


2. The Rürup Pension – The Freelancer Alternative to the Riester Pension

The Riester pension is exclusively available to employees subject to social security contributions. For self-employed individuals without statutory pension insurance, the Rürup pension, introduced in 2005, offers an alternative with attractive tax advantages.

The Rürup pension can be taken out with insurance companies, banks, or investment firms.

Tax Advantages of the Rürup Pension

Compared to conventional private pension insurance, the Rürup pension offers significant tax benefits. Contributions can be deducted as special expenses in the income tax return, reducing the overall tax burden.

A minor drawback: Pension payments from the Rürup pension are subject to higher taxation during the payout phase. This results in a so-called tax deferral effect—shifting the tax burden into the future.

Professional advice can help determine the optimal pension strategy.

Contributions to the Rürup Pension and Tax Deductibility

Contributions to the Rürup pension are classified as retirement savings expenses for tax purposes, along with contributions to professional pension schemes, statutory pension insurance, or the agricultural pension fund.

Tax deductibility is subject to annual maximum limits (as of 2023):

  • Single individuals: €26,528

  • Married couples: €53,056

Previously made contributions to a professional pension scheme or voluntary payments into the statutory pension insurance reduce this deductible amount.

Since 2023, these contributions can be fully deducted from taxes. In 2022, the deductible portion was still 94% and was originally scheduled to increase by 2% annually until 2025. However, the government moved full deductibility forward to 2023, allowing the total amount to be claimed as a special expense in the tax return.

Taxation During Retirement

Both statutory pension insurance and the Rürup pension follow the principle of "tax relief during the accumulation phase and taxation during retirement."

Contributions can be deducted as special expenses for tax purposes, while pension payments are taxed accordingly. Specifically, in 2022, 94% of the Rürup pension was taxable, and since 2023, 100% is taxable, corresponding to the possible special expense deduction.


Private Fully-Funded Pension Insurance

In addition to the heavily state-subsidized Rürup pension, there are numerous private pension insurance options available through insurance companies or banks. While these often offer fewer tax advantages, they provide greater flexibility, such as the option to withdraw capital before retirement.

A private pension plan offers a flexible alternative with several benefits:

  • Loan collateral: The accumulated capital can be used as security for loans.

  • Capital withdrawal option: Choice between a monthly pension or a lump-sum payout of the saved amount. The latter is particularly useful if fixed costs are covered by other income sources such as statutory pensions, stocks, or rental income.

  • Inheritance flexibility: In case of death during the accumulation or retirement phase, the capital can be transferred to heirs.

  • Optional additional contributions and withdrawals: Depending on the contract, both capital withdrawals and additional deposits can be made during the accumulation phase.

Private pension insurance offers more flexibility than statutory pension insurance, positioning itself between private wealth accumulation and state-funded retirement planning.

A particularly attractive feature is the option to withdraw the accumulated capital as a lump sum upon request—an appealing choice for long-term wealth building. As with traditional wealth accumulation, starting early maximizes the compound interest effect and significantly increases the final payout amount.

Info: Choosing the right private pension insurance can be challenging. Contracts can be concluded directly with insurance companies or banks, but many advisors work on a commission basis. Independent advice and personal research are therefore recommended to find the best possible retirement strategy.

How are private pension insurances taxed?

Private pension insurances are taxed differently. Contributions made during the savings phase are generally not tax-deductible, meaning there is no tax advantage like with the Rürup pension.

In retirement, however, part of the pension is tax-free. A distinction is made between the savings portion and the earnings portion. The savings portion consists of the contributions paid over the years and is tax-free upon payout. The earnings portion, which represents the returns generated from these contributions, is subject to taxation.

Info: Self-employed individuals have the option to choose the Riester pension for retirement savings, but only under certain conditions. Employees can take out the state-subsidized Riester pension. In the best case, self-employed individuals can participate in their spouse’s existing contract and benefit from the allowances. A Riester pension without state subsidies would theoretically be possible, but due to high administrative costs, it is generally not advantageous.


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