How secure are you financially at 45?

A secure income

“I don't need any wealth, no long-distance travel and no shopping Sundays. I need a good job that gives me enough income to live healthy and happy with my family. "from an online answer dated June 30, 2015

What is financially available to households in Germany?

The individual prosperity was an important concern of the people in the Citizens' Dialogue. Above all, they combined a reliable income, the financial security enables. They expect to be paid fairly for their work. The minimum wage was rated positively. Occasionally the wish for an unconditional basic income was voiced. For only a few, material prosperity was explicitly less important.

"Quality of life for me means that we don't have to worry about money."from an online response posted on August 22. June 2015

The Indicator of net household income measures the inflation-adjusted mean disposable income of a household, the so-called median1 in 2010 prices in Germany.

The net income indicates what remains in the household after deducting taxes and duties and adding government transfers. It decides how much families or single people can spend and save for their own retirement provision.

Development of net household income in euros

The real net household income is in Germany since reunification by around 15.5 percent from around 18,100 euros to around 20,900 euros gone up. This increase is mainly due to one Catching up process in the eastern German federal states where the household net income rose by almost 20 percent from around 15,150 euros to around 18,150 euros.

In studies such as the Socio-Economic Panel, representatively selected persons2 become yours Household income questioned.

To be all persons living in the household according to their income questioned.

There are 100 points from low to high net household income. Each point represents one percent of the population in Germany and indicates how high their equivalently weighted household income is.

Since the needs of a household do not grow proportionally with the number of people living in it, the net income of each household is weighted according to its composition so that the incomes of different households can be compared with one another. The basis for this is the modified OECD equivalence scale.

In order to compare your own household income with the rest of the population, in addition to the annual income of your household, you must also state how many adults and how many children live in your household. The equivalently weighted income of a multi-person household is then comparable to the income of a single household.

Compare your income with that of other households in Germany. The black circle marks your income and compares it with the total income distribution.

Source: Calculations by DIW Berlin, SOEPv34.

What is the federal government doing?

It is an important goal of the Federal Government that people in Germany have an adequate income and can enjoy a high material standard of living.

To this end, the federal government is investing at a record level in high-performance infrastructure, affordable housing, better education and innovative research. The federal government has also given citizens tax relief and compensated for the cold progression. From 2021, the solidarity surcharge will be abolished for 33 million taxpayers and partially reduced for another 2.5 million.

The distribution of income in Germany

With a view to the distribution of income and wealth in Germany, participants in the dialogue often criticized “the gap between rich and poor”. The discussions showed that citizens were very sensitive to this issue. In the Citizens' Dialogue, the participants specifically debated tax rates, a simpler tax return that is understandable for everyone, and measures against tax evasion and evasion.

"In order to improve the quality of life, in my opinion it is important to narrow the gap between rich and poor."from an online answer dated August 6, 2015

For the Distribution of Income is the Gini coefficient for household income an established internationally comparable yardstick. It is measured on a scale from zero to one. The higher the value, the greater the income inequality. With a value of zero, all citizens would have the same income. At one, one person would have all disposable income.

The Effectiveness of redistributive measures is made by comparing the Gini coefficient before and after taxes and transfers measured.

Gini coefficient of household net income before and after taxes and transfers 1991 to 2016

The inequality of net household income in Germany was relatively constant in the 1990s. However, between 2000 and 2005 the Gini coefficient rose from 0.26 to 0.29. Income distribution has remained largely stable over the past ten years and has only increased slightly.

It is important that the Gini coefficient of household income after taxes and transfers (0.294 in 2016) is well below the income generated on the market (0.487 in 2016). That shows: That German tax and social security system causes a considerable reduction in inequality. It relieves the burden on low-wage earners and families in particular and leads to higher income equality.

in the international comparison of the Gini coefficients the household net income is Germany on 15th place out of 35 OECD countries. Slovakia and Slovenia, among others, have the lowest inequality (around 0.24). Disposable incomes in the USA (0.39), Turkey (0.4), Mexico (0.46) and Costa Rica (0.48), on the other hand, are much more unevenly distributed than in Germany. Of the largest industrialized and emerging countries (G20), Germany has the lowest inequality in terms of net household income.

Gini coefficient of net household income in an OECD comparison, 2016

The Tax and duty system must secure sufficient income to finance public tasks and investments in education, research and infrastructure. At the same time, the successful integration of all population groups into the labor market can only succeed if the design of the tax and welfare systems is given incentives to take up work.

International comparison of tax rates as a percentage of GDP in 2017

The tax rate - d. H. the amount of taxes and social security contributions in relation to the gross domestic product - was as defined by the OECD in 2017 in Germany 37.5 percent. in the international comparison the tax quota in Germany is in the middle of the field. On the one hand, this does not overburden citizens and companies financially. On the other hand, the level of taxes and duties is offset by a level of public services that is appropriate for a highly developed industrial country and a well-developed social security system.

What is the federal government doing?

Low-income recipients receive targeted support: through qualification offers, increases in the minimum wage and improvements in midi jobs.

The distribution of wealth in Germany

The material wealth of a person is determined not only by the monthly income from employment or business activity, but also by that capital. For the citizens, the fairness of the distribution of wealth was of great importance in the citizens' dialogue. Sufficiently high assets, as the citizens made clear in the dialogue, creates security in emergencies, enables long-term planning and realizing one's own goals. Assets are the best retirement provision for after work.

"The fairer it is in society, the happier and more stable the community."from the citizens' dialogue of Lebenshilfe in Wetzlar on June 18, 2015

The indicator Distribution of wealth describes the distribution of wealth in Germany also via the Gini coefficients, on a scale from zero to one, from equal to unequal. The analyzed assets include all types of assets, including real estate or company holdings, stocks and other investments minus debts.

Between 2002 and 2017 the Gini coefficient for the Distribution of wealth relatively stable at around 0.8. In other words, wealth in Germany is much more unevenly distributed than income. The wealthiest ten percent of households own more than 50 percent of total net wealth, the top percent of households around a quarter

Gini coefficient of wealth in EU-15

in the international comparison Germany shows relatively high wealth inequality. In 2010, the Gini coefficient in Germany was 0.78 and thus corresponded to the level in Austria, while wealth, for example, was more evenly distributed in France (0.68) and Italy (0.61)

However, when comparing wealth inequality internationally, there are many country-specific differences that need to be taken into account. The relatively high Gini coefficient for Germany is due, among other things, to the fact that pension entitlements are not taken into account as assets. In addition, people in Germany often rent instead of in their own property.

What is the federal government doing?

The Federal Government attaches particular importance to the fact that all income, including income from assets, is taxed fairly. Efficient tax enforcement ensures the enforcement of tax claims. The Federal Government is also campaigning against tax havens, tax evasion and tax avoidance at the international level.

People who have less than 60 percent of the median income

The Fear of poverty kept the citizens busy in dialogue. In particular, the poverty of children and young people was discussed as a major problem. During the lively discussion on poverty, the majority of the participants in the dialogue were aware that the welfare state cushions such poverty risks. However, some participants pointed out existing gaps and called for improvements.

"We are a rich country and yet our children go to bed hungry."from the ver.di citizens' dialogue in Cologne on June 19, 2015

Poverty has many causes: Educational poverty, loss of individual or family income. It can also be the result of unpredictable life events, such as severe, long periods of illness or the loss of a job.

With the At-risk-of-poverty rate the proportion of the population living in relative income poverty is measured. People who have less than 60 percent of the median net household income in Germany are considered to be at risk of poverty. It is to distinguish relative from absolute poverty. The state basic social security system generally excludes absolute poverty in Germany.

Development of the at-risk-of-poverty rate

After reunification the at-risk-of-poverty rate has risen from around 11 percent to around 15 percent. In 2016, the at-risk-of-poverty rate was 16.6 percent.

At-risk-of-poverty rate for selected groups in 2016

Poverty looms certain risk groups: Women are more at risk of poverty than men. Single parents and large families are also at a higher risk of becoming poor. People with a migration background are significantly more likely to be at risk of poverty than people from Germany.

At-risk-of-poverty rate by age group, 2016

The Risk of poverty meets Age groups different, but most clearly the younger ones. Children and young people are always affected by the poverty of their parents. However, the high risk of poverty among young adults is often temporary. It is significantly reduced after completing the training. This shows that education secures the future.

Compared to younger age groups have Seniors a relatively low risk of poverty in Germany. There is no general acute old-age poverty in Germany today. However, this picture may change in the future. Long-term unemployed, disabled people, (solo) self-employed and single parents have an increased risk of poverty in the future.

The state redistribution mechanisms also show their effect on the at-risk-of-poverty rate. If only market income is considered, i.e. taxes and transfers are neglected, the risk of poverty rate in 2016 was 35.1 percent. After deducting taxes and adding social transfers, the rate was 16.6 percent.

At-risk-of-poverty rate before and after taxes and transfers 1991 to 2016

What is the federal government doing?

The fight against poverty is a central concern of the Federal Government. Investing in education and a successful labor market policy are one of the most important means of preventing poverty in the long term. Almost 18 million children and their parents are benefiting from the increase in child benefit and child allowances. The housing benefit will be increased and made dynamic from 2020 and the group of beneficiaries expanded.

Be reliably covered in old age

Citizens want to be sufficiently financially secure in old age. At the same time, they expect the pension system to remain affordable and that future generations will not have to worry about a secure pension either. That was the unanimous tenor of the dialogue.

"Politics should take demographic change into account, otherwise it will look bad for future generations."from the citizens' dialogue of the North Rhine-Westphalia consumer center in Schwerte on September 9, 2015

In order to be financially well cared for in old age, the individual retirement provision on several pillars build up. The statutory pension insurance is still the for the vast majority of employees most important pillar of old-age insurance. It is supplemented by the voluntary company and private pension schemes. These are important not least because of demographic change.

With the increasing life expectancy the number of years people receive a pension grows. Added to this is the approaching retirement of the “baby boomers”, the baby boomers born between 1955 and 1964. This development poses a major challenge to the financial situation of the pension insurance.

Development of the old-age quotient up to 2013 and forecast up to 2060

The Age structure of the population can be found on the so-called Old-age quotient read off. It describes how many older people (67 years and older) there are compared to 100 people of working age (20 to 66 years). Since 2010 it has been around 30: 100 people of working age are compared to around 31 pensioners. In 2050, 100 people of working age will face 48 elderly people.

For the pension insurance, the ratio of contributors and beneficiaries will deteriorate, fewer people will have to finance more pensioners in the future.

At the present time, the large majority of retirees in Germany not dependent on government support in old age. Basic security benefits in old age were received by around 560,000 people in December 2018.

For future generations of retirees, various scientific studies point to the Risk of increasing poverty in old age down. There are many possible causes for an increasing risk of poverty in the future. For example, employment histories and household contexts have changed in the long-term trend.

In the future, it will be important to make better use of the labor force potential. From an economic point of view, it is not the proportion of people of working age that is of decisive importance, but rather whether these people are actually employed - with the highest possible productivity. The long-term sustainability of all pillars of old-age security can be achieved if it is possible to put people in a position to provide for their retirement through increasing participation (in all groups of people and ages up to retirement age) and through sufficiently high wages. It must be ensured that they are not overwhelmed by excessive expenses.

What is the federal government doing?

For the federal government, the so-called three-pillar model, consisting of statutory, company and private old-age insurance, is the model for a responsible pension policy.

To ensure that old-age insurance remains reliable, the federal government guarantees that the pension level does not fall below 48 percent and that the pension contribution does not rise above 20 percent. The around 25 million retirees have repeatedly benefited from a significant increase in pensions due to the good economic situation.