What incentives are offered to investors in the Altersvorsorge-Depot?
There are 3 types of incentives included in the AVD:
Cash incentives
The state will add a cash amount on top of the deposits you make out of pocket. Cash incentives are based on the following two tiers:
- From €1 to €360, you get 50 Cents for every Euro you deposit (50% incentives)
- From €360 to €1,800, you get 20 Cents for every Euro you deposit (20% incentives).
Children benefits
For each child associated with your AVD account, the state will match your contributions 1:1 up to an amount of €300/year. Here are a few examples:
- 1 Child, €300/year out-of-pocket deposits = €300 additional state incentive
- 2 Children, €300/year out-of-pocket deposits = €600 additional state incentive
- 3 Children, €300/year out-of-pocket deposits = €900 additional state incentive
Tax Benefits
On top of the incentives, the total invested amounts (your own investments and the state incentives) will be considered as deductible costs for tax purposes and can be used to reduce your overall tax burden. However: the cash incentives already received are deducted from that amount. For example:
- You deposited a total of €1,800 and received €540 as direct incentives. Total deductible amount = €2,340.
- Your tax rate is 42%.
- Your tax rebate will be: 42% of 2,340 = €982.8. However, since €540 was already received as a cash incentives, it's deducted from this amount, leaving a final tax reduction of 982.8 - 540 = €442.8
Example
Take the calculator's own default assumptions: a 32-year-old depositing €150/month - the current threshold for full basic subsidies - until retiring at 67, a 35-year horizon, assuming a 38% marginal tax rate, a 7% gross return, and a 0.30% annual fee, with no children.
Over 35 years, that's €63,000 of your own money - but the account grows to €363,014: €30,233 of that came from state subsidies (cash matches plus reinvested tax refunds), and €269,781 from net investment growth. Your own contributions made up less than a fifth of the final balance.
At retirement, if you withdraw the maximal 30% lump-sum, you'd receive a net amount of €78,411 (after roughly €30,493 in tax on the subsidized Layer 1 portion), and drawing down the rest over 18 years to age 85 gives you a net monthly pension of €1,161.
Take the calculator's own default assumptions: a 32-year-old depositing €150/month - the current threshold for full basic subsidies - until retiring at 67, a 35-year horizon, assuming a 38% marginal tax rate, a 7% gross return, and a 0.30% annual fee, with no children.
Over 35 years, that's €63,000 of your own money - but the account grows to €363,014: €30,233 of that came from state subsidies (cash matches plus reinvested tax refunds), and €269,781 from net investment growth. Your own contributions made up less than a fifth of the final balance.
At retirement, if you withdraw the maximal 30% lump-sum, you'd receive a net amount of €78,411 (after roughly €30,493 in tax on the subsidized Layer 1 portion), and drawing down the rest over 18 years to age 85 gives you a net monthly pension of €1,161.
How to use it — what each input means
Current Age / Target Retirement Age - sets your investment horizon.
Monthly Deposit - the first €150/month (€1,800/year) qualifies for full basic state subsidies ("Layer 1"). Anything you deposit above that still grows in the same account, but without subsidies ("Layer 2").
Marginal Income Tax Rate - determines your Sonderausgabenabzug tax refund, which is reinvested into the account the following year.
Expected Gross Return / Annual Fee - your investment assumptions during the accumulation years. Certified AVD products are fee-capped at 1% per year. The actual fees may vary significantly and they depend on what specific providers will offer.
Eligible Children - each child under your selected age ceiling adds a 1:1 state match on up to €300/year in deposits.
Lump-Sum Cashout (%) - how much of your balance to take as a one-time payment at retirement, up to 30%. The rest converts into either a termed drawdown or a lifelong annuity.
Payout Method - a termed drawdown pays out until a target age you choose (e.g. 85), after which the portfolio is designed to reach zero; a lifelong annuity guarantees income for life at a fixed rate, but typically leaves nothing for heirs if you die early.
Drawdown Target Age (termed drawdown only) - the age by which your payout is calculated to fully deplete the account. A higher target age spreads the balance across more years for a lower monthly payout but less risk of outliving your savings; a lower target age does the reverse.
Post-Retirement Return (termed drawdown only) - the gross return your remaining balance is assumed to earn while being drawn down, separate from your growth-phase return since most people shift to a more conservative mix after retiring. Defaults to 4%, versus 7% during accumulation.
- Current Age / Target Retirement Age - sets your investment horizon.
- Monthly Deposit - the first €150/month (€1,800/year) qualifies for full basic state subsidies ("Layer 1"). Anything you deposit above that still grows in the same account, but without subsidies ("Layer 2").
- Marginal Income Tax Rate - determines your Sonderausgabenabzug tax refund, which is reinvested into the account the following year.
- Expected Gross Return / Annual Fee - your investment assumptions during the accumulation years. Certified AVD products are fee-capped at 1% per year. The actual fees may vary significantly and they depend on what specific providers will offer.
- Eligible Children - each child under your selected age ceiling adds a 1:1 state match on up to €300/year in deposits.
- Lump-Sum Cashout (%) - how much of your balance to take as a one-time payment at retirement, up to 30%. The rest converts into either a termed drawdown or a lifelong annuity.
- Payout Method - a termed drawdown pays out until a target age you choose (e.g. 85), after which the portfolio is designed to reach zero; a lifelong annuity guarantees income for life at a fixed rate, but typically leaves nothing for heirs if you die early.
- Drawdown Target Age (termed drawdown only) - the age by which your payout is calculated to fully deplete the account. A higher target age spreads the balance across more years for a lower monthly payout but less risk of outliving your savings; a lower target age does the reverse.
- Post-Retirement Return (termed drawdown only) - the gross return your remaining balance is assumed to earn while being drawn down, separate from your growth-phase return since most people shift to a more conservative mix after retiring. Defaults to 4%, versus 7% during accumulation.
FAQ
Is the Altersvorsorgedepot better than investing independently?
It depends heavily on your deposit amount and whether you have children. Within the subsidized €150/month threshold - especially with a family match added - the AVD can genuinely outperform independent investing thanks to the cash subsidies and tax refunds. Above that threshold, or without children, independent low-cost ETF investing might out-perform the AVD, once the ongoing fee is factored in. See my Riester 2.0 post, and its follow up post, for the exact comparison numbers.
What's the difference between Layer 1 and Layer 2?
Layer 1 is your first €150/month in deposits, and it receives all the state subsidies. Layer 2 is anything you deposit above that - it still grows tax-deferred in the same account, but gets none of the cash matches or tax-refund top-ups.
What is Halbeinkünfteverfahren, and why does it matter?
It's a preferential tax treatment - only half your Layer 2 gains get taxed, at your personal rate, instead of the full flat capital-gains rate - and it applies if you're at least 62 and have held the account at least 12 years when you withdraw.
Should I choose the termed drawdown or the lifelong annuity?
A termed drawdown gives you a predictable payout to a target age, more flexibility, and something left for your heirs if you die before that age - but you could outlive it. If you do, the monthly payments stop and you have to live on without them, relying only on other income sources such as the state pension, private pensions etc. A lifelong annuity guarantees income for as long as you live, at the cost of that flexibility and any residual value.
Is this financial advice?
Absolutely not - this is an illustrative tool to help you understand how the AVD works, not a personalized recommendation. If you want a plan built around your actual circumstances, that's what 1-on-1 consulting is for.