Is the Stuttgarter Gesundheitskonto performance+ worth it?
Introduction to contract review.
Can I rely on the performance+ of the Stuttgart Health Account?
A customer approached us with this specific question and presented us with their contract offer for review.
If you are currently dealing with this question, this blog article is intended to provide orientation and a better understanding. However, please note that individual parameters may result in a different outcome for your specific offer or contract examination.
We do not intend to criticize the insurer or the examined tariff in a blanket manner with this blog article but rather strive to objectively and objectively examine only the offer in its individual composition.
If you also wish for a specific review of your offer or existing contract, you are welcome to contact us free of charge and without obligation.
More information: How does a contract review process work?
Before we examine the details of the performance+ health account offer by Stuttgart, it is important to mention some fundamental points that characterize a good retirement plan.
Ensure that your retirement plan has a high and realistically expected return for the future.
Please consider that all costs will reduce your return, so they should be as small as possible.
Additional factors that can reduce returns: Depending on the investment, you must consider a range of other negative factors that can decrease your returns. It is important to be aware of these factors from the beginning and factor them into your calculations.
Take advantage of the legal possibilities for reducing taxes to achieve a high compound interest effect.
Do not underestimate the negative effects of inflation – protect your capital.
If you specifically consider these listed points, you have a high chance of your invested capital actually increasing in the end.
Contract review master data.
Based on the offer we have, the monthly contribution is 350 euros without an initial investment. The assumed contribution duration is 33 years, covering the entire contract period. There is no desired dynamic contribution adjustment.
The age of the policyholder at the start of the contract is 34 years, and retirement is planned at 67 years. With consistent contribution payment throughout the contract period, a total of 138,600.00 euros will be invested. Additional payments during the contract period and contribution changes are not considered.
To determine if a contract is truly worth it for you, it is necessary to first calculate the realistic average return (before costs and taxes) for the future.
The development of individual securities such as stocks or funds is unpredictable. To provide a professional assessment of an investment, it is important to delve deeper. This means that first, it must be examined which sources of return the investment relies on, i.e., in which asset classes (known as investment classes) a monetary investment is allocated.
If we come across an investment with a hundred percent stock allocation, we will use the long-term expected return of the stock market, which is an average of nine percent per year.
There are numerous scientific research studies on these “market returns” in different asset classes, which we refer to. Relevant literature references can be found at the end of this article.
Starting from the market return, which is assumed to be long-term and applicable to the future as well, various types of costs (such as contract costs and fund costs of the respective used fund) and other factors that reduce returns are then subtracted to determine a realistically expected customer return.
The documents for the Stuttgart Health Account performance+ show that 100% of the contributions go into the Warburg – Global Stocks R fund. This fund is an equity fund with an equity share of almost 100%. Therefore, we calculate with a performance of the global stock market of 9% per year – before costs and taxes (market return). From this, the various factors that reduce returns are deducted in order to determine a realistic average customer return.
If you want to learn more about the basics of a financial mathematics exam, you can find a link to a separate blog article below this post that exclusively covers this topic.
Costs in the contract.
In the next step, it is necessary to research the different types of costs that significantly reduce your return on investment. These include the costs of the insurer and the fund management, which are directly deducted from the contract balance at different times. While the other factors that reduce returns do not fall directly into the category of costs and are not paid from the contract balance, they should also be considered as they have a direct impact on the return and therefore on your invested capital.
Summary of costs: – Costs of Stuttgart: 28,154.08 Euros – Costs of the capital investment: 117,466.87 Euros
This includes both the fund costs and other factors that reduce returns.
From the graph, you can see the different cost categories of the insurer during the premium payment period. The following cost categories should be taken into account:
Here is an excerpt from the contract offer of Stuttgart Health Account performance+. We have added the researched costs in red.
Alpha-Kosten is the closing and distribution costs that are typically deducted from the contract balance over the five-year repayment period. Depending on the type of intermediary (insurance broker, insurance agent, etc.), these costs are paid out to the intermediary as a commission, up to 100 percent. The calculation is based on multiplying the annual premium by the number of years of premium payment and adding any initial payment (the so-called valuation sum). For particularly long contract terms, the calculation of the valuation sum is limited to a certain number of years, typically 30 to 50 years, depending on the insurer.
Dynamic adjustments (e.g. automatic five percent per year) and contribution increases during the contract period increase the valuation sum. In such a case, when calculating the new valuation sum, it is assumed that the increased amount will be invested until the end of the contribution payment period. The additional annual amount resulting from the contribution increase is multiplied by the contribution years in the future. Each time at the time of the increase, new initial and distribution costs are calculated.
During the duration of the contract, any additional payments will also incur new closing and distribution costs, usually similar to a one-time premium.
If you reduce or completely stop contributing before the repayment period, you will not be charged any remaining closing and distribution costs. However, any costs that have already been charged will not be refunded. After the repayment period expires, there will be no further reduction as the closing and distribution costs have already been fully charged to you.
In our contract offer for the Stuttgarter Gesundheitskonto performance+, we have determined an evaluation amount of 138,600.00 Euros and alpha costs of 2.5 percent.
The annual membership fee of 350 Euro multiplied by 12 months equals a total of 4,200 Euro for a contribution period of 33 years.
The total amount is 138,600 Euros multiplied by 2.5 percent.
The total cost of 3,465.00 Euros is spread over a period of 60 months.
(Not considering future changes or additional payments)
The amount of Beta costs depends on the contributions and is deducted from the contract balance immediately after each contribution payment. This type of cost belongs to the administrative costs of an insurance contract. Many insurers differentiate between ongoing contributions, initial investments, and additional payments made during the contract period. Some insurers use a scale to calculate these costs, which often leads to a reduction in Beta costs over the contract period.
Early contribution reduction or contribution exemption results in adjustment of beta costs from the time of reduction. The disadvantage for you in this case is that you may be charged relatively high beta costs in the first few years due to the tier calculation, and you may only partially or not benefit from the later reduction as a customer.
Some insurers involve their customers in surplus participation, which reduces beta costs.
Note: The surplus will be annually determined and is not guaranteed. Therefore, it is possible that it could be completely eliminated for the entire remaining duration of the contract as early as next year.
In our contract offer for the Stuttgarter Gesundheitskonto performance+, we have determined beta costs of 8.5 percent for each monthly contribution of 350 euros.
The calculation is as follows: 350 Euro multiplied by 8.5 percent equals 29.75 Euro, multiplied by 12 months, multiplied by 33 years of contribution duration.
The total contract cost for Beta is 11,781 Euro.
Gamma-Kosten are calculated based on the total contract balance at any given time. These costs make up the largest portion of expenses in long-term contracts and are considered part of the administrative costs of an insurance policy. Typically, these costs are calculated annually and deducted directly from the contract balance. However, some providers may calculate and display Gamma-Kosten on monthly basis, so it is important for individuals needto check the specific billing frequency used.
Over the years, ongoing premium payments, dynamic adjustments, contributions, and interest form an increasingly higher basis for calculation. The fixed percentage cost rate often results in a significant increase in cost size, which is calculated from the contract balance. Some insurers also apply different percentage gamma cost rates for different types of premiums, such as ongoing premium payments or contributions.
In our contractual offer, the Stuttgarter Gesundheitskonto performance+, we have determined annual gamma costs amounting to 0.38 percent of the total contract balance.
It is not possible to determine the exact amount of Gamma costs before the contract is signed due to unpredictable contract development. However, assuming a consistent contract development, an estimated total amount of costs for the entire contract period can be calculated. In the financial mathematical report on the Stuttgarter Health Account performance+, we will see the total amount of insurer costs. Subtracting the specifically calculable other types of insurer costs, our calculations show a remaining amount for the Gamma costs.
The total contract cost over the entire duration, assuming a consistently maintained surplus participation, is 12,908.08 euros.
Kappa-Kosten is also known as administrative costs or unit costs. They are deducted directly from the contract balance. However, not all insurers calculate these costs. If they are applied, they are a fixed annual amount, regardless of any individual contract details.
In our contract proposal for Stuttgarter Gesundheitskonto performance+, we were unable to determine the kappa costs.
(This is an excerpt from the key investor information document of Warburg – Global Equity R)
The costs of the capital investment, specifically the fund, can be found in the excerpt from the “Key Investor Information”. The following types of costs should be distinguished:
Load fees and redemption fees.
These costs occur with every deposit or withdrawal and often serve as compensation for the bank or investment advisor. They are either deducted directly from the investment amount or must be paid separately by you. The calculation method can be misleading, as it leads t different costs. Under certain conditions, these costs are occasionally discounted or waived completely. However, often the ongoing costs of the fund are higher, which has significantly more negative effects on the long-term performance than the cost advantage from the discount on the initial charge. In most insurance-based retirement contracts, these types of costs are completely waived and therefore should not be considered.
The ongoing costs are deducted directly from the fund balance by the investment company. The amount of ongoing costs can be adjusted without your consent. You are not actively informed about this, but you can research on your own after the end of a fiscal year to find out the percentage of costs on your fund balance. Just like the gamma costs, the calculation basis also increases over the duration of the contract. The ongoing contributions, dynamic adjustments, additional payments, and interest form a continually higher calculation basis over the years. The percentage cost rate therefore often results in a significantly increasing cost size, which is calculated from the fund balance.
According to the essential investor information of the Warburg – Aktien Global R, which is included in our contract offer of the Stuttgarter Gesundheitskonto performance+, annual ongoing costs of 1.04 percent are calculated on the total fund assets. Due to the unpredictable development of the fund, it is not possible to accurately quantify the ongoing fund costs for the future. In our financial mathematical examination, we have therefore assumed a constant fund development and no possible changes to the ongoing fund costs.
These factors are not direct fees charged to you as a customer. However, they must be considered because they have a direct impact on your return and therefore your capital. The amount of these factors is influenced by the investment strategy, so we classify them as part of the costs of capital investment for better understanding. Like the ongoing costs explained above, these influencing factors must also be considered annually as a percentage and cannot be precisely calculated for the future. Hundreds of scientific studies confirm the existence of a number of factors that reduce returns.
In the research of our contract offer, the Stuttgarter Gesundheitskonto performance+, and the selected investment strategy, we have taken into account the following factors that may reduce returns.
Opportunity costs resulting from potentially unfavorable investment decisions compared to a scientific, evidence-based investment strategy* are estimated to reduce returns by an average of 0.50 percent per year.
Transaction costs are estimated to average 1.00 percent per year, reducing returns.
The selected investment strategy is estimated to result in an average annual reduction in returns of 0.86 percent due to cash lock-in.
For a detailed explanation of these and other negative influencing factors, we have written a separate extensive blog article. You can find the link to it at the end of this article.
In the literature references, you will find a study that illustrates the differences between conventional asset management and evidence-based investing.
The results of our examination regarding the performance+ of the Stuttgart Health Account.
We have created an assessment with our financial mathematical software, which clearly presents all factors in Euros over the entire contract duration on the results page.
The costs and other factors that reduce the returns of a financial product directly affect the yield on your invested money. These factors are often difficult or sometimes not even visible in the extensive offering and contract documents.
The total amount of contributions made over 33 years is calculated by multiplying 350 euros by 12 months and then by 33 years.
The total costs of the investment include fund expenses and other factors that reduce returns.
The total costs of the Stuttgart team during the duration of the contract will be directly deducted from the agreement.
This is the representation of the total burden in euros over the 33-year contract period.
Estimated gross final capital payout after 33 years.
Estimated net capital payout after 33 years.
Projected gross pension after 33 years of contribution.
(Page showing the results of the financial mathematical report)
The total deposit over the contract period is 138,600.00 euros. The costs taken from the contract documents of Stuttgarter amount to 28,154.08 euros. The total costs of the capital investment, plus other negative influencing factors, amount to 117,466.87 euros.
The final capital is 271,026.02 euros. Taxes are due on this final amount if fully paid out at the end of the contract. Based on our tax requirements, this results in a one-time tax liability of 15,931.23 euros, resulting in a net capital of 255,094.80 euros.
You can also receive a lifelong pension from the Stuttgart Health Account performance+. The monthly pension amount is determined by the contract balance at the start of the pension, multiplied by the guaranteed pension factor, at a minimum. In recent years, many insurers have repeatedly reduced the higher pension factors resulting from surpluses. Therefore, we calculate with the guaranteed pension factor, which is 24.05 euros per 10,000 euros of contract balance at the planned retirement age.
The monthly gross pension is calculated as follows: 271.026,02 Euro divided by 10.000, multiplied by 24,05 Euro guaranteed annuity factor, resulting in 651,82 Euro.
Our conclusion on the performance+ of the Stuttgart Health Account.
At first glance, the result of receiving a lifetime gross pension of over 651.82 Euros from a monthly investment of 350 Euros seems quite decent. Similarly, the ratio of 138,600.00 Euros paid compared to a net capital payout of 255,094.80 Euros may also appear to be a good result.
However, the following should be taken into consideration:
If you choose to receive a monthly pension of 651.82 euros (before taxes) at the age of 67, instead of a lump sum payment of 271,026.02 euros (before taxes), you would have to receive the pension for 415 months, which is just over 34 years. Therefore, you would need to live to at least 101 years old in order to truly benefit from the pension option.
Additionally, it should be noted that due to the average inflation rate of approximately two percent per year, the purchasing power, or value, of the pension is greatly reduced. Taking this inflation rate into account, the pension of 651.82 euros will only have a “value” of 339.10 euros in 37 years.
If you decide to opt for a one-time payout at the age of 67, you should also take into consideration that the purchasing power of the payout will be significantly reduced by inflation.