Retirement fund and Riester options for university teacher

Question

For several months now I've tried to get my financial life in order, however, I'm failing to find a solution for my retirement fund.

I am in my early 30s and working half-time at a university here in Germany, which earns me roughly 1.390 € after taxes. I will be employed until the end of February 2016. I was told that Riester is the first step in building a private retirement fund and the extra charge from the state sounds like a good thing to me. However, there are so many different models (partly incorporating funds, partly not) and every bank and insurance company seems to offer at least some of them. I have been to a financial advisor, but I do not trust her since she told me about one product only and I know she gets commission on these.

Additionally, I am working in a field in which it is uncertain if I will stay in Germany or even the EU within the next three years, or if I will ever come back. This makes it much more difficult since a) the extra charge would be irrelevant if I work abroad and b) the extra charge would not be paid is I live outside the EU after retirement.

I would therefore ask for your opinion on the following: - Is Riester the right thing for me? - If so, where can I find the fitting product? Do you have a recommendation? - Is there a better way to build a retirement fund?

Thank you so, so much in advance!

Tl;dr: early 30s university teacher has no straight plan for career, hence no security for retirement fund.

Answer 1

If there is any chance of you living and working outside of Germany in the future, then a Riester contract is definitely wrong for you, as you would lose the benefits while still paying the costs.

For someone with plans or prospects of international migration, it's probably best to have retirement savings in a form that is not directly tied to any country-specific laws or subsidies.

Everyone (including Warren Buffett) recommends low-cost index funds as the ideal investment for people without much knowlege of financial markets, and specifically index ETFs also fit your requirement very well: you can buy and sell them from anywhere, and the only complications arise from tax laws, but those are proverbially inevitable.

So:

• Choose an index ETF with a low expense ratio, ideally one that automatically reinvests dividends (in German: Thesaurierende Ertragsverwendung).
• Get an account with an online bank or broker, make sure there are no monthly or yearly fees and that they haven an investment plan (German: Sparplpan) for your chosen ETF so that you can benefit from the cost-averaging effect.
• That's it for now. You're atomatically building an investment that is both very flexible and gives good returns.
• If you move overseas and can't keep the account with that bank or broker, you can have the shares you've accumulated transferred to an account somewhere else.
• At any time, you can buy additional shares (if you find that you have a lot of money you don't know what to do with) or sell shares (if you urgently need the money, e.g. to buy your dream home).
• As you're nearing retirement (or maybe before), you'll want to reduce the volatility of your investment so that you don't end up having to sell it when the market is down. But that's a different question...