Does the Altersvorsorge-Depot make sense for Homeowners?

At first glance, the new Altersvorsorge-Depot (AV Depot) looks attractive: tax subsidies as you pay in, tax-free accumulation over time, and proper investment in ETFs. And with the Wohnförderkonto option, you can even pay off your mortgage early. The main drawback: you have to pay taxes on your gains in retirement at your personal income tax rate. And your payout options are limited. Using the Wohnförderkonto option can eliminate that drawback.

Your result

Given your monthly investment of €300 (with your partner), we calculate the following monthly top-up to your statutory pension:

In summary, if you stick to the

Additionally, the net monthly pension option allows you to remain invested during retirement and pass on your remaining savings to your heirs. However, the AV Depot is less attractive for inheritance, as transferring the remaining balance to a spouse or other heirs may require repayment of government subsidies and tax benefits. While spouses can receive the remaining balance into their own AV Depot without losing these benefits, other heirs generally receive the remaining balance after the subsidies and tax benefits have been deducted. Therefore, our calculations assume that you start investing in a Private Pension Plan (PPP) once your mortgage is fully repaid. The earlier you repay your mortgage, the sooner you can start accumulating inheritable wealth. Based on your strategy, your estimated inheritance would be:

Alternatively, you could choose the

Depending on the path you opt for, you will have your mortgage paid off after: 

The option to repay your mortgage loan earlier using Sondertilgung is nearly always worse. But do check the numbers here:

How does it work?

In general, the best option is the Wohnförderkonto. Let us show in graphs how that works, and then it also becomes clear when it does not, and a Private Pension Plan solution or an AVdepot or even Sondertilgung might be more beneficial. 

The mortgage balance declines over time

The mortgage balance declines over time while your investments increase. If you save through an AV Depot/Wohnförderkonto your investments grow faster. If you contribute, as a couple, 300€ per month over 20 years, and have two kids, your 72k€ in savings can grow to about 250K€. With your parameters, the Wohnförderkonto shortens the time it takes to pay off your mortgage by 11 years. You will have accumulated 205.060 € by the time you can repay your mortgage in 16 years

You need to choose your refinance period wisely to use this option To avoid paying a repayment penalty, you need to choose your refi period wisely. You do not need to do that now. Nearly all mortgages have an initial fixed rate period of 10-15 years. This means you have to refi after 10-15 years. At that point in time, you choose a refi period such that you can avoid a prepayment penalty. For example, if you expect to repay your mortgage in 18 years with a Wohnförderkonto and you initially fix your mortgage interest for 10 years, you can choose your second fixed-interest period at 8 years. 

In addition you need to consider that your investments increase faster or slower than expected. Markets are volatile after all.

In the above graph this is shown by the dotted green line. If your investments hit this line you can switch your portfolio to bonds and then pay off your mortgage as expected.

You are better off repaying your mortgage at once rather than each year Another question many users have is if you should use your AV Depot to pay off your mortgage each year instead of once when you can pay your mortgage in one go. If you do it each year, you reduce your taxes, but you forgo investing in ETFs and that returns more than paying off your mortgage. The latter effect results in you paying off your mortgage at a later date--as you can see in the figure below. Overall that effect dominates, so it is much better to invest first and then pay off your mortgage at once.

After repaying your mortgage you can invest this money

What should you do after you pay off your mortgage? This is a great opportunity. You are debt free and no longer have your monthly mortgage payments. You can use this opportunity to accelerate your saving plans. We assume that you then use the most beneficial option for investing which is a Private Pension Plan.

In general, the sooner you pay off your mortgage the better it is for various reasons:

You will still need to pay some taxes on your Wohnförderkonto. This is illustrated by the small drop in the red line showing your assets at the time of retirement. The figure above also shows that if your mortgage is such that you have a hard time repaying it before retirement, the Wohnförderkonto option might not work that well. It means that you will have just a few years or none at all to accumulate additional assets before retiring. There is then also little time for the erosion of the real value of Wohnförderkonto and hence also little time for the erosion of the real tax burden

General Background

Taxation and subsidies

You will get a 30% subsidy on a maximum of 1,800€ of savings into the AVdepot per year→max 540€ subsidy per year. Günstiger Prüfung, or picking the best option, lets you get an additional tax rebate if you have a tax rate above 30%. The actual subsidy is 50% on the first 360€ and 25% on the remaining amount, but this balances out to 30% if you make the maximum contribution. 

You get an additional 300€ per eligible child per year (max age 21 or dependent 24). Gains are not taxed during the saving phase, but payouts are taxed at your personal income tax rate. For tax purposes, the Wohnförderkonto is assumed to be paid out in 5 equal proportions over the first 5 years in retirement. The return on the Wohnförderkonto (i.e. the balance invested in the home) is assumed to be zero for tax purposes, so your net return is then your mortgage interest rate.

Specific assumptions

Where the calculator reveals problems with the AVdepot

For most users, the limitation in the payout phase dominates the benefits of the AVdepot as such: