Even if your retirement is a few years away yet, it's worth starting to plan early. That way, you can lay the key groundwork early so that you can enjoy a comfortable retirement later on.
Planning for retirement – key information at a glance:
- Financial requirements: Don't set your living costs after retirement too low. You should plan for 80 to 100 percent of the expenses required prior to retirement.
- Pension or lump-sum payment: You can usually choose whether you would like to draw your pension assets as a monthly pension or have it paid out as a lump sum. Some funds also offer a combination of both (partial withdrawal).
- Early retirement: You should also look into the possibility of taking early retirement.
- Working for longer: You can choose to work beyond regular AHV retirement age. By doing so, you will also receive a higher pension.
What is important for retirement planning
Your prospective retirement provision is made up of your AHV benefits and your pension fund benefits. Income often decreases by far more than the cost of living during retirement. It therefore pays to compare your current budget with your anticipated income in retirement.
When setting up your fixed expenditures, consider that expenses in some areas could increase – for example, for health, leisure, renovation or remodeling of your home.
If you can cover your future requirements with your prospective basic income, you've properly laid the foundation for the future. You could possibly even think about early retirement.
If the basic income is not enough to cover your requirements, you should check to see what additional assets you have in order to close your pension gaps. These include real estate, securities, life insurance policies and savings in pillar 3a.
This decision depends to a large extent on your life situation, income and assets. You should also take your personal wishes and goals into account.
As a rule of thumb: Cost of living and basic needs (i.e. accommodation and utility costs as well as insurance and everything you need on a day-to-day basis) should be covered by the benefits from AHV and the pension fund. Whatever you have beyond that can be withdrawn as capital. When deciding whether that makes sense, you should take the following into account:
A pension provides you with a secure, monthly income – for the rest of your life. And in the event of death, your spouse gets a guaranteed survivor's pension. In general, this amounts to 60 percent of the original pension.
Good to know: There is no protection against inflation, however, which means the pension fund is not required to adjust the benefits to higher costs. And the pension fund benefits must be taxed as income.
If you decide on a lump-sum payment, you have more scope for action in your personal financial planning. You're free to invest your money as you please, but also bear some risk of variability in return. And in the event of death, the unused retirement savings pass on fully to your heirs – which is not the case for a pension.
Early retirement is always connected with financial penalties. That's why you should start planning as soon as possible if you are hoping to retire early, so as to take as much advantage of tax-deductible pension offers as you can.
You can cushion a reduction of your pension, for example, by making a purchase in the pension fund. The amount you are allowed to pay in is noted on your pension statement. You generally receive this annually from your pension fund.
Additionally, you should exploit your opportunity for private provision in the third pillar. Pillar 3a gives you an opportunity to build up additional capital with a retirement savings account or a custody account.
If you have set up several retirement savings accounts, you can withdraw the money in staggered amounts and thus save on tax. You should also check what other opportunities you have to build up capital to keep financial penalties to a minimum.
Even by practicing financial discipline, not many can afford early retirement. But maybe you have alternatives? Many pension funds allow for partial retirement. Clarify with your employer whether a soft exit is possible.
If you work beyond regular AHV retirement age, you benefit from a percentage increase in your pension. But you will have to continue paying AHV contributions if you earn more than CHF 16,800 a year.
You can continue to pay into pillar 2 up until you reach the age of 70. You will also receive a bigger pension from the pension fund if you continue to work for longer.
You can continue to pay into pillar 3a and defer payout of your pension for up to five years after having reached regular retirement age – but only for as long as you are still gainfully employed.
Further information is available in our free information sheets relating to retirement.
Good advice pays off
Do you have any questions about planning your retirement? Or would you like to know how you can optimize your pension? Our retirement experts will be happy to answer your questions. Together we will look at your life situation and assets and work out the optimal solution for you.