Taking a break from work to raise a child can significantly diminish long-term wealth accumulation. According to financial modeling by the comparison portal Verivox, reported by newspapers in the Funke media group, someone who temporarily saves less or nothing into an ETF savings plan following the birth of a child could have up to €222,000 less wealth by retirement at age 67.
The impact of a career break is heavily dependent on its duration. Using an assumed average annual return of 7.5 percent, Verivox shows that if someone starts saving €300 monthly at age 25, they could accumulate a portfolio worth just over €991,000 by the time they retire at 67.
However, if this hypothetical saver has a child at age 30 and reduces her savings rate by 35 percent-down to €195 a month-due to parental benefits in the first year of the break, she misses out on €1,260 in wealth after one year. Verivox assumes that parental benefits cover 65 percent of the last income, leaving less money available for saving. Even if she returns to depositing the full €300 after the one-year baby break, the lost compound interest amounts to about €17,700 by retirement.
If the professional break exceeds twelve months, the parental benefits are completely removed in the model, and the saver completely pauses her contributions. Under these conditions, the model saver would have nearly €108,000 less in her portfolio at retirement after a three-year family-related leave. If the break extends until the child starts formal schooling-six years-the deficit grows significantly to €222,000. This massive difference is primarily due to the power of compound interest; by the time the child starts school, only €19,260 less would have been deposited compared to continuous saving.
Melanie Ulbrich, a financial expert at Verivox and contributor to the Funke media group, emphasizes that the issue is not just the lost contributions. She explains that by investing less or not at all for several years during family formation, people also forfeit decades of potential returns. Therefore, a seemingly small drop in monthly deposits can create a vastly larger wealth gap over the long term.
Verivox based its models on an average annual return of 7.5 percent. The actual performance might differ due to fluctuating stock prices, and tax implications were not considered in the calculations.
