Glossary

Personal finance glossary

18 terms from German pension statements, tax returns and FIRE forums. Each one explained in a sentence, with an example and the calculator that works it out for your numbers.

4

4% rule: The 4% rule is a rule of thumb for retirement withdrawals: take 4 % of your starting portfolio in year one, then the same amount plus inflation each year. In US data for retirements starting 1926 to 1976, a mixed portfolio always lasted at least 33 years (Bengen, 1994). Reversed: target = spending × 25.

A

Abgeltungsteuer (flat tax on capital income): Abgeltungsteuer is the German income tax on private investment income such as interest, dividends, fund income and capital gains. It is a flat 25 % (§ 32d EStG), plus a 5.5 % solidarity surcharge and church tax where due. Your bank withholds it, and that normally settles the tax.

C

Contribution ceiling (Beitragsbemessungsgrenze): The contribution ceiling (Beitragsbemessungsgrenze) is the income up to which German social security contributions are charged; income above it is contribution-free. In 2026 it is €101,400 a year (€8,450 a month) for pension and unemployment insurance and €69,750 (€5,812.50) for health and care insurance.

F

Flexirente (flexible retirement): Flexirente (flexible retirement) is the umbrella term for German rules that let you shape the move into retirement: drawing an old-age pension as a partial pension between 10 % and 99.99 %, working alongside it with no earnings limit, and paying in or deferring the pension after the statutory age for higher payments.
Freistellungsauftrag (exemption order): A Freistellungsauftrag (exemption order) is an instruction to a German bank to pay out investment income up to a set amount without deducting withholding tax. Across all banks together it may not exceed the saver's allowance: €1,000 a year, or €2,000 for spouses assessed jointly.
Frugalism and FIRE: Frugalism is a lifestyle of deliberately low spending in which you save and invest a large share of your income to become financially independent early. It is closely tied to FIRE (Financial Independence, Retire Early): the goal is wealth whose returns can cover your living costs.

G

Günstigerprüfung (most favourable assessment): Günstigerprüfung (most favourable assessment) is a comparison in which the German tax office calculates your tax two ways and applies the cheaper one. It exists for investment income (personal rate instead of 25 %, on request), for Kindergeld versus the child allowance, and for Riester.

H

Health insurance for pensioners (KVdR): The KVdR (Krankenversicherung der Rentner) is compulsory public health insurance for pensioners who were publicly insured for at least nine tenths of the second half of their working life (§ 5 (1) no. 11 SGB V). Contributions are due on pensions and work income, not on investment or rental income.

P

Pension gap: The pension gap (Rentenlücke) is the amount you will be short each month in retirement: the net income you want minus your state pension after health insurance, long-term care insurance and tax, minus company and private pensions. It shows how much income your own savings must cover.
Pension level (Rentenniveau): The pension level (Rentenniveau; legally the Sicherungsniveau vor Steuern) is the ratio of a standard pension after 45 years of average earnings to the average wage, both after social contributions and before tax (§ 154a SGB VI). It is 48.0 % in 2026 and may not fall below 48 % until 1 July 2031.
Pension points (Entgeltpunkte): Pension points (Entgeltpunkte, informally Rentenpunkte) measure your contributions to the German state pension: one year at exactly the average salary of all insured people earns one point (§ 63 SGB VI). Since 1 July 2026 each point pays €42.52 of gross monthly pension.
Progressionsvorbehalt (progression clause): The Progressionsvorbehalt (progression clause, § 32b EStG) means that certain tax-free payments, such as Elterngeld, unemployment benefit (ALG I), sick pay or short-time work pay, are not taxed themselves but raise the tax rate applied to the rest of your taxable income.
Property purchase costs (Kaufnebenkosten): Kaufnebenkosten are the costs of buying property in Germany on top of the price: real estate transfer tax (3.5 % to 6.5 % depending on the state), notary and land registry fees, and the buyer's share of any broker commission. Together they come to about 5 % to 12 % of the purchase price.

R

Real return: The real rate of return is the return on an investment after inflation, the growth in what your money can buy. It is calculated as (1 + nominal return) ÷ (1 + inflation rate) − 1. With a 5 % return and 2.2 % inflation, that is 2.74 %.

S

Saver's allowance (Sparerpauschbetrag): The saver's allowance (Sparer-Pauschbetrag) is a flat amount deducted from your German investment income each year: €1,000 per person, €2,000 for spouses assessed jointly (§ 20 (9) EStG). Income up to that amount is tax-free; actual costs cannot be deducted on top.
Savings rate: The savings rate is the share of disposable income that is saved rather than spent. For a household: monthly saving divided by net income. According to the Federal Statistical Office, German households saved 10.1 % of their disposable income in 2025.
Sequence of returns risk: Sequence of returns risk is the risk that poor returns arrive just as you start withdrawing from your savings. Because withdrawals in bad years use up more units, the same portfolio with the same average return can run out sooner or later depending on the order of the years.

T

Teilfreistellung (partial exemption for funds): Teilfreistellung (partial exemption) is the share of income from an investment fund that is tax-free in Germany (§ 20 InvStG). For private investors it is 30 % for equity funds, 15 % for mixed funds, 60 % for real estate funds and 80 % for funds investing mainly in foreign real estate.