Lose All Your Money if You Can’t Retire: The Risk of Inadequate Pensions

Understanding the Requirements for Retirement

It is crucial to know that meeting specific requirements is essential to retire, as failing to do so not only means not being entitled to a pension but also losing all the money contributed over the years.

Without reaching the minimum requirement to access a pension, all the money paid to the social security system is forfeited and cannot be recovered.
How much money are we talking about? Calculating the amount contributed to the system for each year of work is quite straightforward, as there is a precise percentage to consider.

How Many Contributions are Needed for Retirement?

Have you ever wondered how many years of work are necessary to qualify for a pension? This question is especially relevant for younger individuals who underestimate the importance of planning ahead and understanding the minimum requirements to stop working and enjoy the benefits earned during their career.

Planning for retirement is crucial, and it is never too early to start.
This planning process will help individuals understand why working off the books should always be avoided and why being employed part-time for years can jeopardize pension eligibility.

In detail, a crucial condition for retirement is reaching a specific number of contributions.
For the old-age pension at 67, this number is set at 20 years.
It is important to note that one year of work does not necessarily equate to one year of contributions.
The income earned must be at least a certain amount, recalibrated annually.
In 2024, this amount is 239.44 euros gross per week, approximately 950 euros gross per month.
Individuals earning less, such as part-time workers, will need to work for more than 12 months to obtain one year of contributions.

Working legally and with a sufficient income is fundamental to aim for at least 20 years of contributions.
Moreover, for those who started working after 1996, there is a second requirement that is not easily met with just 20 years of work: the pension amount must be at least equal to the minimum social pension, which this year stands at 534.41 euros per month.
Achieving this amount with only 20 years of contributions requires earning an average of at least 1,415 euros gross per month.

The Financial Loss for Failing to Retire

Not meeting the requirements for retirement means not being able to recover the contributions made throughout one’s career.
For instance, consider someone who worked part-time for 20 years, earning 800 euros gross per month, totaling 10,400 euros annually.

In this scenario, by earning less than the approximately 950 euros needed for full recognition of one year of contributions, the 20-year work requirement is not met, leading to ineligibility for a pension.
The only option for those who started working after 1996 and have no prior contributions is to wait until the age of 71 and opt for the retirement scheme that only requires 5 years of contributions.

For someone with even one weekly contribution before the mentioned date, there is no way to receive the pension.
Considering that 33% of the earnings are contributed, with a monthly salary of 800 euros over a 20-year career, approximately 68,600 euros are lost.

Now, let’s consider an individual who worked legally for only 10 years, earning 2,000 euros gross per month.
If the retirement conditions are not met, approximately 85,800 euros are forfeited based on the contributions made.

These amounts are significant, highlighting the importance of ensuring that the contributions made during one’s career do not go to waste.
This can be achieved by meeting the minimum requirements for retirement, being cautious about accepting under-the-table job offers (not only because they don’t count towards pension eligibility), and always keeping track of the contributions paid and those still needed for retirement.

Money.it Courses: Planning for Retirement

For further information and guidance on retirement planning, feel free to explore our dedicated course on Money.it.
Start preparing for your future today!