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On my bike ride Monday morning, bringing our oldest to school, I was thinking about a conversation I recently had with a neighbor about retirement and how difficult it is to really put aside anything when you have a vast amount of expenditures on a salary that has not budged much over the past years.

The conversation was ultimately about how to create a small amount of wealth for retirement, which in Germany is at the age of 67 (if you are born after 1964) – this to me is a whole different topic, all on a salary that has not budged much for this individual over the past years. We did not really go into depth, but that always starts cranking some thoughts.

Hence, I began looking into a few numbers. The average German salary today is roughly 42K (That’s an average. There are millions that earn below 20K and millions above 100K). Historically, over the past 20 years, that’s only a rough 6K increase since 2000 – interesting to me, as to denote the similar wage of this person. Still, my first question is why this individual’s salary has stayed fairly similar over the past years (no increase, bonus, etc.) and secondly, looking at expenditures, what really is a necessity to this person’s lifestyle. By that, I mean, throwing money left and right for things you probably don’t really need, and I don’t count a Starbucks latte in there. Go get one if you please.

So, a few thoughts on how to turn €35K/year (on average) into a €500k cushion in retirement. Yes, this seems crazy. But I do believe it is doable. On average, most financial advisors tell you to save 10-15% of your salary (or follow certain rules), in this case somewhere between ~€3.5 and ~€5.2K. However, if you want to reach half a million, you’re going to have to look at it quite differently. The major factor here is age. The individual I’m basing this off is in their early 30s.

So taking that into account, I put out some assumptions:

  • No savings in your account
  • You get 6% return on your investments (That is my favorite ROI %)
  • You retire at age 67

The calculations also do not take into account any other considerations. The assumption is the salary will stay flat until retirement to make this simple. I’ve only done 4 brackets to show the rough age range.

Age% of IncomeMonthly SavingsYearly SavingsRetirement Savings
257.5%€ 221.00€ 2,652.00~€500,000
3010.5%€ 307.00€ 3,684.00 ~ €500,000
3514.8%€ 432.00€ 5,184.00 ~ €500,000
4021.3%€ 622.00€ 7,464.00 ~ €500,000
Based on the above assumptions with the power of compounding interest

So based on the generic numbers, we have. An individual around 35K/year in Germany, depending on a variety of other factors, will earn somewhere around 2200 Euros net. (Not taking the various tax factors into account). However, the point of the above chart shows the percentage needed depending on the age of the individual (among other things). So, if you can put aside X and compound that year after year, you get returns on your returns. That was my overall point in our discussion. I have not disclosed any specifics on this individual (logically) concerning single/married, kids/no kids, etc. however, this post goes to show that anyone with a salary of around €35K can achieve half a million Euros by retirement. The real question you need to ask yourself is – what are you spending your money on? Are you willing to put in the work and put aside those numbers’ month for month and year after year?

My advice to anyone is to start saving now. And not just putting it aside or in your drawer or under your pillow, but making your money work for you through the power of compounding. Financial acumen is such a vital part of life, but our current education system simply does not teach it.

And as an additional side note I mentioned to this individual and for this post, what if, think about this – what if, you didn’t need to work until the age of 67. Life is precious. Either way,

  • think about the things you do with your money,
  • and where it flows,
  • and make your money work for you!

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