Why plan your retirement 10 years in advance?
How do you envision your retirement? If you haven’t thought about that question yet, you might want to consider it for a moment ASAP.
And then? Ask yourself if you really have enough cash on hand to fund your next life projects. Your daily life, your trips, your nights out... whatever you feel like doing.
How do you envision your retirement? If you haven’t thought about that question yet, you might want to consider it for a moment ASAP.
And then? Ask yourself if you really have enough cash on hand to fund your next life projects. Your daily life, your trips, your nights out... whatever you feel like doing.
But how are you going to get by if you realize you’re short of money? How will you cope with an income that’s only 50% or 70% of your current paycheck?
Will you be prepared to halve your standard of living? Forgo your retirement aspirations? Will you give up on the boat trips of your dreams or that journey you’ve been longing for your whole life?
If seen too late, that’s going to be your only alternative. Yet should you be able to apprehend your living standard soon enough – between 5 and 15 years before you retire – it will still give you plenty of time to figure out how to make up for any financial shortfalls.
Albeit quite efficient, the Swiss pension system is particularly complicated to grasp, making this calculation all the more relevant.
When is the best time to plan for your retirement?
You may want to consider planning your pension between 5 and 15 years before you actually retire.
You’ve probably been preparing for your retirement for a while now, whether it’s through your 3rd pillar or personal investments (such as real estate).
You may want to consider planning your pension between 5 and 15 years before you actually retire.
You’ve probably been preparing for your retirement for a while now, whether it’s through your 3rd pillar or personal investments (such as real estate).
Retirement planning consists of:
· On the one hand, consolidating your assets and debts so that you can accurately determine the income you’ll get and the best way to receive it (pre-retirement tax planning).
· On the other hand, budgeting for your pension according to your needs and desires (and considering how to fill any shortfalls).
We do that by working out all possible scenarios so that you can make the most informed choices possible.
Of course, given the complexity of the task, seeking professional guidance is recommended.
The Swiss retirement pension system: not exactly a simple affair
Just as a reminder, the Swiss pension system is composed of 3 pillars:
Just as a reminder, the Swiss pension system is composed of 3 pillars:
· The first pillar (or also: AVS, which in French stands for “Assurance-vieillesse et survivants”, which literally means “Old-Age and Survivors’ Insurance” – abbreviated as OASI in English) is the part of your pension paid by the Swiss Confederation, but it generally accounts for the smallest part of your income.
· The second pillar (or occupational pension funds, LPP: “Loi sur la prévoyance professionnelle”, or “Occupational Pensions Act” – sometimes shortened as OPA in English) is the part paid by your employer’s pension fund and to which you have contributed during your career. By merging these two pillars, you will receive at the end of each month 50 to 70% of your last salary, at best.
· The third pillar: it’s not compulsory and is put together using accounts and/or specific insurance policies. It’s financed solely by personal savings.
One problem lies in the fact that the different mechanisms of the 3 pillars, their intertwining, as well as the large number of players involved, all make it difficult to calculate your future income.
Top 3 questions to ask when planning your retirement
Let’s delve deeper into each of those three questions…
Let’s delve deeper into each of those three questions…
1. What budget will be at your disposal?
Once you retire, where are you going to live? How are you going to spend your daily life? How often would you like to travel?
And above all, are you going to have the means to do so; or is it necessary for you to start looking for solutions to fill any financial shortfalls now?
To find it out, you’ll have to consolidate your assets, income, and debts.
2. At what age would you like to retire
Your income will obviously not be the same whether you retire at 58 or 65... And you should also plan this early enough to keep a certain wiggle room. That means you might as well decide to retire in your fifties.
Having determined the appropriate retirement age for you, you’ll find it easier to estimate your future earnings.
Which raises a further question...
3. Do you prefer a lump-sum payment, an annuity, or a mixture of both?
Do you prefer to get it all at once? Or do you prefer to have part of your retirement income paid to you at the end of each month?
This decision is important: you can’t change it once you’ve made up your mind.
And it carries serious tax consequences.
It should be noted that you can also split the amount and get one part in the form of capital and the other as an annuity.
Either way, it’s no toss-up, but a decision that should be made after some serious thought.
Advantages and disadvantages of annuities and capital within the 2nd pillar system
Let’s take a closer look.
Let’s take a closer look.
PENSIONS
· + Income security throughout the retirement period
· + No need for administration other than monthly
· - Taxed as working income
· - No inheritance for descendants. However, the 1st and 2nd pillar pension funds will keep paying (lower) annuities to your spouse after you passed away.
CAPITAL
· + The remainder is passed on to your descendants
· + No annual income tax
· - No annual income tax – but a tax on withdrawal
· - Requires careful amount management
Always remember to optimize your retirement taxes!
No answer is better than another. Nor is one choice better than another. Pre-retirement tax planning will vary depending on your budget and intentions, especially when it comes to the first two pillars.
No answer is better than another. Nor is one choice better than another. Pre-retirement tax planning will vary depending on your budget and intentions, especially when it comes to the first two pillars.
As for the 3rd pillar, the one-off tax on your withdrawal is based on the amount you wish to draw. Spreading your withdrawals over several years will save you tax money, so you need to give it some thought ahead of time.
The amount of tax you pay depends on the retirement lifestyle choices you make, as well as your overall situation:
o Which country are you going to live in?
o If you have chosen Switzerland, in which canton and commune are you going to reside?
o Are you taking it in the form of a capital sum or an annuity?
o Are you carrying mortgage debt?
o Are you married, single or a parent?
o And so on.
Hence the importance (we insist one last time, then the article will finally come to an end, cross my heart) of planning your retirement in such a way that the fiscal aspect of your retirement is also considered.
Retirement planning as designed by FBKConseils
1. The first date!
The goal is to meet in person or by videoconference to find out what your retirement needs are and how we can best help you plan for them. If you happen to be well prepared, we will directly set together the budget needed for your retirement – including your monthly expenses, income, assets, debts, securities, pets, closets. Just kidding, of course, but you kind of get the idea; we go through your assets and needs to ensure your means and desires match up.
2. The paperwork!
Then comes the administrative burden (wish it could be avoided – but impossible to escape it...), which means we must prepare all the required papers (like power of attorney, LPP certificate, AVS account extract, etc.); that will allow us to open a folder under your name and gather all the data we need to offer you a complete analysis tailored to your needs.
3. The calculation!
Once we create your file, we can tackle the calculations, the analyses, the considerations, as well as the ways to optimize your money. What does all this gibberish mean? Well, it basically means that we will provide you with a report containing different scenarios based on your wishes and optimization possibilities, not forgetting the calculation of your future taxes. In other words, we’ll look at every possible path to come up with the one that poses the fewest obstacles.
4. The outcome for your retirement planning!
And finally, we’ll discuss and clarify the results of these customized analyses to guide you in effectively setting up your retirement.
Sort of like putting together a series of movies about your life and you pick your favorite.
The bottom line is that by investing in retirement planning with a trusted partner, you are saving money and simplifying your life.
Then, in our company, you can find out for yourself how it feels when you don’t have to think about your retirement anymore.
How long does this procedure take and how much does it cost ?
A distinction must be made between the actual work and the overall time including the response times of the different institutions involved.
Basically, a good retirement planning takes between 6 and 10 hours of work, but in reality, it is usually spread over a much longer period. Of course, the simplest cases will require less work than more complex cases or cases with special demands.
As each situation is different, it is always this first appointment, free of charge, that will enable us to obtain an overview of the work to be done and to be able to offer you an estimate adapted to your situation.
In all cases, we will provide you with a detailed offer and a customised quote.
You should start thinking about how to retire about ten years before the end of your professional career.
This gives you the best chance to enjoy a pleasant retirement once you’ve anticipated your needs.
The AVS guarantees a minimum pension of 1’195 CHF for a single person. It can reach a maximum of 2’390 CHF and 3’585 CHF (according to data from 2021) for a married couple. Retirement in Switzerland is supplemented by the 2nd (LPP) and 3rd pillars (private pension).
Men can retire at 65, and women at 64 – it is however possible to retire earlier, when you’re 58, or even to postpone the process up to five years after the legal retirement age.
Swiss retirements are made up of three elements: Cheese, chocolate, and milk.
Kidding, these are: The AVS, which is the 1st pillar of the Swiss pension system, to which you must pay contributions, and which corresponds to approximately 20-30% of your former salary.
In addition to that, you will have to contribute to the 2nd pillar, which you and your employer will have paid into throughout your professional career, and which will enable you to reach up to 50 or 60% of your former salary.
You can also choose to open a 3rd pillar that will be added to the first two pillars to make up for any remaining shortfall in income.
