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Annuity or lump sum: which is better in Germany?

In short

With today's annuity factors of about EUR 24 to 30 a month per EUR 10,000, it takes 28 to 35 years of payments before your capital has come back. If you start at 67, you would have to live past 95. The annuity is still the better choice in Germany if you want protection against a long life. If you can manage the money yourself with a plan, the lump sum is often more flexible.

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Annuity or lump sum: which is better in Germany?

What it costs

Figures from German law, official statistics and published market data, as of October 2026.

Example	Typical range
Guaranteed annuity factor in newer contracts	about EUR 24 to 30 per EUR 10,000 of capital
EUR 100,000 of capital as an annuity	about EUR 240 to 300 a month
Income share when starting at 65 to 67	17 to 18 percent of the annuity
Taxable part of the gain on a lump sum after 12 years and from 62	50 percent, at your personal rate
Remaining life expectancy at 65	men 18.2 years, women 21.2 years
Lump sum under Riester	at most 30 percent of the capital

Annuity factors vary considerably by company, tariff and year of signing; the range is based on published market overviews.

The withdrawal plan in the text is our own example at 2 percent interest.

Your own figures are in the statement your company sends before the pension starts.

Worked example

Contract from 2014, pension from 67, EUR 100,000 of capital

EUR 70,000 was paid in. Calculated with an annuity factor of 26 and a personal tax rate of 25 percent.

Monthly annuity (100,000 / 10,000 × 26)	EUR 260
Annual annuity	EUR 3,120
Taxable, 17 percent income share	about EUR 530, tax about EUR 130 a year
Capital paid back after	just over 32 years, at about 99
Gain on a lump sum	EUR 30,000
Taxable half	EUR 15,000, tax about EUR 3,750
Net lump sum	about EUR 96,250

On the numbers alone the lump sum wins unless you live to a very old age. The annuity is the price of certainty that money still comes in at 95. If you want both, take part as capital and convert the rest into an annuity.

What you are really deciding

A lifelong annuity is insurance against living a long time. It pays as long as you live, even at 100. In return you give up the capital, and whatever is left when you die stays with the insurer unless you agreed otherwise.

The lump sum gives you freedom: you can pay off a mortgage, renovate, leave it to your heirs or withdraw it yourself in instalments. In exchange, you carry the risk that the money runs out before you do.

There is no answer that fits everyone. Health, other income, family and your own discipline with money all play a part. If you plan to retire outside Germany, think about currency and where you will be taxed as well.

Aspect	Lifelong annuity	Lump sum
Security if you live long	full, pays until death	only while the money lasts
Access to the money	none	any time
Leaving money to heirs	only with a guarantee period or refund clause	what is left goes to your heirs
Tax	income share, low	part of the gain at once
Protection against inflation	only via bonuses, not guaranteed	depends on how you invest
Effort	none	you plan investment and withdrawals

Doing the maths with the annuity factor

The annuity factor (Rentenfaktor) tells you how much monthly pension you get per EUR 10,000 of capital. At 26, EUR 100,000 becomes EUR 260 a month, EUR 3,120 a year.

Divide your capital by the annual pension and you see how long it takes until your money is back. At EUR 3,120 that is just over 32 years, without interest.

Insurers calculate with a longer life expectancy than general statistics. If you are healthy and your family lives long, you get more out of it. If you are seriously ill, an annuity almost certainly loses money.

What matters is the guaranteed factor. The figure including bonuses looks better but is not promised.

How both options are taxed

A private annuity is only taxed on its income share, which depends on your age when payments start: 18 percent at 65, 17 percent at 67. Of EUR 3,120 a year, about EUR 530 is taxable.

For the lump sum, the gain counts, meaning the payout minus your contributions. If you held the contract for at least twelve years and are at least 62, only half of the gain is taxed at your personal rate. For contracts from before 2012, age 60 is enough.

If these conditions are not met, the full gain is subject to the flat 25 percent capital gains tax (Abgeltungsteuer), plus solidarity surcharge and church tax where applicable.

Old contracts from before 2005 are often entirely tax free if they ran for at least twelve years and meet the other old conditions. Here the lump sum usually wins on tax.

When the lump sum makes more sense

If you have debts, such as a remaining mortgage, paying them off saves interest with certainty. If your health is poor, the annuity is rarely a good deal.

If you already have an adequate state pension or civil service pension and see the money mainly as a reserve or inheritance, you do not need another lifelong payment.

A middle way is a withdrawal plan (Auszahlplan): you invest the capital safely or in a mix and take out a fixed amount each month. EUR 100,000 at 2 percent interest lasts for about EUR 500 a month over 20 years, but then it is gone.

When the annuity makes more sense

If your other income is tight and you fear being without money at 90, the lifelong annuity is the safe route. You cannot lose it on bad investments or spend it too early.

If you do not want to manage an investment for decades, the annuity suits you too. With a short guarantee period of five or ten years, something is left for your family if you die early.

Deadlines and special cases

You usually have to choose the lump sum before the pension starts, often a few months in advance. The exact deadline is in your policy terms. After that, the annuity can usually not be reversed.

Many contracts allow a partial payout: some as capital, the rest as an annuity. With Riester at most 30 percent can be taken as a lump sum, and the Rürup basic pension does not allow a lump sum at all.

Company pensions (betriebliche Altersversorgung) follow their own rules. Members of public health insurance pay contributions on a lump sum too, spread over ten years. Have this calculated before you decide.

Step by step

A year before the pension starts, ask for a statement with capital, guaranteed annuity and annuity factor.
Look up the deadline for the lump sum option in your terms and note it.
Add up your other income in retirement: state pension, company pension, rent.
Work out how many years the annuity needs to pay back the capital.
Have the tax on both options estimated, and for company pensions the health insurance contributions too.
Check whether a partial payout is possible if you want both.
Submit your decision in writing and on time.

Checklist

Guaranteed annuity factor known, not only the figure with bonuses
Deadline for the lump sum option noted
Year of signing and term checked for tax
Health and family history honestly assessed
Plan ready for the capital if you take it
Surviving dependants considered: guarantee period or refund of remaining capital

Common mistakes

Missing the deadline for the lump sum and being tied to the annuity
Looking only at the annuity factor with bonuses, which is not guaranteed
Taking the capital without a plan, so it is used up by 80
Overlooking health insurance contributions on a company pension lump sum
Converting a tax-free old contract into an annuity although the capital would be tax free

Questions and answers

Frequently asked

From what age does the annuity beat the lump sum?

With a factor around 26 and a start at 67, only from about 99, without interest. With bonuses it may be a few years earlier.

Can I still choose the lump sum after the annuity has started?

Usually not. Once payments run, the choice is generally final. Some tariffs allow withdrawals during the guarantee period.

Do I pay tax on a lump sum?

On the gain, yes. After 12 years and a payout from 62 only on half of it, and contracts from before 2005 are often tax free.

Is a private annuity fully taxed?

No, only the income share. If payments start at 67, 17 percent of the annuity is taxable.

Can I take my Riester savings as a lump sum?

No, at most 30 percent at the start of the payout phase. The rest is paid as an annuity.

What is a withdrawal plan?

You invest the capital and take out a fixed amount each month. It is flexible and can be inherited but ends when the money runs out.

What happens to the annuity if I die early?

Without an agreement it ends. With a guarantee period it continues to your dependants for the agreed time.