Retirement is a turning point in life, when many things change. Your financial situation in particular. People often forget to plan this new phase of life or begin dealing with it too late. “To avoid any unpleasant surprises, planning for retirement should start 10 to 15 years earlier,” says private client advisor Natali Geiser. “At this point you still have enough options open to make tweaks and close any pension gaps.”
The basis of reliable retirement planning is a detailed budget, as it is only by comparing your expected income and expenses that you can tell whether you’ll be able to maintain your accustomed standard of living when you retire. “The funds from the first and second pillars are usually insufficient for this, since they only cover 60 to 70 percent of your last income,” private client advisor Giuseppe Degiorgi explains. Drafting a budget reveals whether and how you can make up the remaining income. But it also helps you make certain decisions in connection with retirement: Should I have my pension fund assets paid out as a lump sum, as a regular pension or as a mixture of the two? Can I afford to retire early? Does it make sense to pay off my mortgage? And above all: What wishes will I be able to fulfil after retirement?
What are my expenses?
The first step in budgeting is to list your current expenses, broken down into areas such as insurance, housing, taxes, household, health, mobility and leisure. This involves recording your fixed monthly expenses – such as rent, health insurance and telephone bills – as well as quarterly or annual costs such as mortgage interest, household insurance and taxes. For larger budget items like this, it may be helpful to calculate a monthly average. The same is true for variable costs such as food or clothing.
The second step is to estimate how your expenses are likely to change once you retire. While you won’t have any job-related expenses such as the cost of getting to work, other expenses increase as you get older. Supplementary health insurance, for example, becomes more expensive. But the biggest difference is that pensioners have more time to spend their money. Expenditure on travel and hobbies often increases considerably in the first few years of retirement.
What costs get overlooked?