Biometric… interest yield?!

The number of life insurances guaranteeing fixed interest rates in addition to saved capital is growing smaller, while the promise of a slightly higher rate of return is becoming increasingly common. In past years, up to 4% guaranteed interest rates were possible, but today even 0.9% seem to hit the upper limit. The only hope remains in benefits derived from profit distribution, but even chances of these are looking slimmer and slimmer as interest rates remain at a historic low.  

So, what should one do?! Is a “self-made pension” really an option? The magazine “Gewinn” (Profit) made following calculations:  a 65-year old man, who has by this point saved up EUR 100,000, divides the sum by the statistical remaining lifetime and gets an average pension of EUR 5,478.81 a year. So, should one pay out this sum year for year to finance his remaining life? No, unless one plans on dying at the statistical average age. The longer one lives, the higher the interest rate would have to be. The technical term for this is biometric yield, and it is much higher than what would be possible to obtain through income from the capital market. As one grows older, so does one’s life expectancy. A man celebrating his 90th birthday, for example, would already have to receive a biometric interest rate of 19.73%, if only to keep the level constant to the previous year. A biometric return on a life insurance can, in turn, only be provided in a collective.    

Anyone looking for a tailored solution should better seek professional advice on time. After all, not all that glitters is gold.