Imagine you are 60 years old and about to retire. What standard of living would you like to have in the future? What plans do you have after you’ve stopped working? Are you financially prepared for unforeseen events? Although a lot of people don’t feel comfortable dealing with the subject, pension planning is an important issue, especially for women. In order to avoid it turning into something negative, here you will find various tips and an overview of the most pressing issues, which are all too often neglected.
Do you know why pension planning is particularly important for women?
When it comes to retirement planning, women often start from a weaker position than men. They often reach the limits of their maximum earned income at an early age, while men are more likely to receive salary increases until old age. The difference in income between women and men – the gender pay gap – leads to a lower retirement pension and hence to a gender pension gap – which in some cases can be substantial.
Women’s lower income can often be explained by a maternity break, frequently associated with a switch to reduced working hours. People who earn less are able to save less money for old age – and therefore have a smaller pension. Unforeseeable events such as divorce or loss of income due to illness or accident can also have a negative impact on retirement capital.
Are you making full use of all the possibilities when planning your pension?
The sooner you start thinking about pension planning, the better. If you start building up your personal pension provision at a young age, you can look forward to retirement with confidence. A few years before the official retirement age, you should start making specific plans for your pension. This will allow you to react in time in case of foreseeable financial difficulties. Alternatively, you might even discover that early retirement is possible.
It is best to combine all three pillars (AHV, pension fund and private retirement savings):
- Keep an eye on AHV. Find out how high your state pension will be. Order an AHV account statement. Make sure all the contribution years have been paid in and check what benefits you can expect when you retire. If you do not reach the annual AHV minimum contribution, you should make up the difference each year. Supplementary payments are possible within five years.
- Close pension fund gaps. Your pension fund assets are largely dependent on your income. Anyone who is not in employment has no entitlement to occupational pension insurance. People with a low income are disadvantaged further because of the coordination deduction. The current law stipulates that the first 24,885 francs will only be insured in pillar 1 and not in pillar 2. As a result, women in part-time work in particular are at a disadvantage when it comes to occupational pension provision. Your gap is calculated on the assumption that you have been insured for your entire working life at the current conditions. This means that the gap for low earners can be small. Nevertheless, it’s worth examining the possibility of buying into the pension fund, but not without having a close look at the health of the pension fund first.
- Take advantage of the possibilities of the third pillar. Anyone who pays into pillar 3a each year benefits from tax advantages and avoids gaps in their pension provision. The prerequisite for this is an income subject to AHV contributions. People in active employment with a pension fund can pay in a maximum of 6826 Swiss francs per year (status: 2020). People who are self-employed without a pension fund can invest up to 20 percent of their net income (or a maximum of 34,128 Swiss francs) in this restricted pension plan. It is also possible to invest pillar 3a assets in retirement funds, which offer additional potential returns. Discover how we can help you put this into practice here. Making voluntary payments into pillar 3a is preferable to buying into the pension fund.
What standard of living would you like to have in retirement?
Planning for retirement involves taking an honest look at your own finances. Think about the standard of living you want for your retirement and the costs involved. Based on this, you can define your savings goals for retirement planning and will have the opportunity to invest your money accordingly:
- Take stock. Obtain an overview of existing pension measures and check which investments, assets and policies you already have. This will allow you to identify gaps in coverage as well as possible overinsurance. We would be happy to help you with this analysis.
- Draw up a budget. Gain a picture of your monthly income and expenditure, and calculate your personal budget based on these figures. Identify savings potential that you could incorporate into your retirement planning. Every franc saved is an investment in your future pension.
- Define clear savings goals. Set short, medium and long-term savings goals and invest your money accordingly. Since women have a higher average life expectancy than men, the longer investment horizon should also be taken into account when choosing an investment strategy. Do not lose sight of having fun, but keep your wishes for the future in mind.
What could possibly upset your plans?
Check your pension and financial situation regularly. An up-to-date overview serves as a basis for taking every eventuality into account, and will allow you to plan your pension accordingly:
- Run through all the eventualities. Do you wish to remain single or are you planning to get married in the near future? Are you already married? Do you want children or are you already a mother? Do you work part-time? Developments such as a divorce or patchwork family situation will also have an impact on your future pension and should therefore be envisaged.
- Insure yourself against disability. A serious accident or illness can suddenly endanger financial independence. This is a burden that is particularly heavy for single women, but can also be a great challenge for a family. So make sure you take precautions in good time.
- Secure your mortgage. Since mortgages are usually taken out as a couple, they carry a high risk, especially for women. If their partner dies, the mortgage can quickly become a financial burden. Even if nobody likes to talk about it, every woman should ask herself early on whether she would be able to continue financing the mortgage alone in these circumstances.
How great is your confidence in the pension system?
It is difficult to say what the future of retirement provision looks like – but demographic change, a fluctuating labor market and the current economic situation pose major challenges for the Swiss pension system. Not least for this reason, it’s worth supplementing the state pension with a private pension plan such as p illar 3a.
Take responsibility: trust is good, control is better!
The main rule is that trust is good, control is better. You are responsible for your own retirement planning. Remain financially independent and do not rely on your occupational pension provision or on the protection provided by your partner. Investigate your private retirement planning at an early stage. There are many ways to make your own provisions for retirement in a pro-active way. We will be pleased to help you to find the best solution for your situation.