Even though it is likely not in anybody’s best interest to fall into financial disgrace, the German security system is in place to help out in such cases. Unlike the system in place in other industrialized nations, the German security system is based on a direct redistribution system. This means that social security paid out to individuals is directly financed by those paying taxes. While this is basically an effective system, it can lead to problems if for any reason the money paid by tax payers decreases and does not cover the financial cost of the social security system anymore. A reason for such decrease could be a recession that leaves many people looking for work and therefore also in need of help by the social security system. Another problematic situation occurs when demographic change is in progress. The latter is a problem that Germany has had for many years, with a decreasing birth rate as well as an increased life expectancy. This leaves, an increased demand for pensions based on social security, while the workforce that itself is not increasing in size has to cover this increasing amount of money distributed to people receiving social benefits. Germany has been trying to counter this alarming trend by attracting more immigrants as well as by offering large financial benefits for parents with young children, unfortunately with not much of a positive result to show for. Birth statistics are still showing too little of an increase to significantly improve the demographic change.
Many financial benefits besides pensions are available for both citizens as well as people legally residing in Germany. One of the most commonly occurring situations requiring social security benefits is unemployment. When people living in Germany lose their job, for the first few months they are entitled to receive a fairly large percentage of their former income called Arbeitslosengeld I (ALG I). This amount is both based on the amount that they used to earn as well as the time that they have earned it for and the age of the applicant. During their employment a part of the salary is deducted immediately and transferred partially to an unemployment fund. The deducted amount is matched by the employer and made available once somebody loses his job, in the form of said ALGI. For example, somebody aged 35 who has worked a job that had money deducted for unemployment insurance for 24 months, benefits are available for 12 months of unemployment. After this period passes and the individual is still unemployed, and has no financial reserves, this person is now applicable to receive Hartz IV, a form of unemployment benefit for those unemployed for longer periods of time. More information about the eligibility and duration of receiving ALG I can be found here http://www.arbeitsagentur.de/nn_25638/Navigation/zentral/Buerger/Arbeitslos/Alg/Dauer-Anspruch/Dauer-Nav.html .
Besides providing pensions for the elderly and unemployment, the German security system is also in place for the following (but not limited to):