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Retirement planning
If you want to be well covered financially in retirement, you should start planning your budget early. We show you what’s important when planning and the pitfalls to be avoided.
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Reaching retirement age raises many new questions. Will you have enough money to maintain your standard of living? Or will you need to cut costs in everyday life because of a pension gap?
A gap of this kind is a real risk in old age. OASI and occupational pensions are only equivalent to 60 to 70% of your previous income after retirement. However, expenses often decrease less than expected after retirement and remain at just 70 to 90% of their previous level. In addition, many pensioners face the risk of inflation, which they often do not take into account in their planning, as well as rising life expectancy and possible higher healthcare costs in old age.
To cover all expenses after retirement, besides the income they can expect from pillars 1 and 2, many retirees need to save up additional assets that will keep them secure. One way to do this is with tax-privileged savings in pillar 3a. To plan as accurately as possible, you should also pay close attention to the relationship between your income and expenditures during your working life. This will make it easier for you to draw conclusions that you can use to plan for retirement.
The free UBS Pension Check gives you a reliable overview of your current financial situation. Based on the results, you can optimize or increase your private retirement savings.
Rising healthcare costs and unpredictable inflation make it difficult to know how much wealth you will need in retirement. However, a solid financial plan can at least provide you with some security. The first step is to get an overview of your regular expenses. You should always be able to cover these with the resources available to you. You should also hold sufficient assets in reserve to create a buffer for emergencies.
In the second step, you should start accumulating the additional assets you will need. Some people use additional savings to cover later care costs. Others want to improve their standard of living in old age and, for example, fulfill cherished dreams. To this end, you should start early by following an individually tailored investment strategy designed to build wealth for your future retirement.
In the third step, you can start building wealth for future generations if that’s something you want. However, you should only look to build up this capital if your life in old age is already comprehensively secured.
In order not to worry about your finances when you retire, it’s worth planning your budget in detail well before retirement. A closer look at your expected income and expenses in retirement will give you clarity. Our calculator will show you whether you need to worry about a pension gap.
First of all, find out what income you can expect in old age. You can find your expected income from pillar 1 in the OASI pension forecast, which you can order from your compensation office. Your pension fund statement gives you an overview of the income you can expect from pillar 2.
You should also calculate how much in assets and income you will have available from pillar 3, vested benefits accounts or in the form of other assets, such as securities or rental income.
Now you should calculate your expected expenses so you can compare them with your expected income. To start, define all areas in which current and future expenses will be incurred, for example divided into the categories of housing, insurance, taxes, health, mobility and leisure.
This allows you to clearly classify all costs that remain after retirement. These include housing costs, health insurance premiums, as well as subscriptions or phone bills. Many of these costs do not automatically decrease when you retire, as they have a certain base price that does not change. Housing costs will continue to account for a large part of regular costs. As a rule of thumb, they should not exceed roughly 30% of your income. For quarterly or annual costs, you should calculate a monthly average to combine them with the other items. Costs that change with retirement are more difficult to calculate. Review how your everyday life might change in old age and how this would affect your budget. Some costs will no longer arise compared to today, but other, new costs will be added.
Many pensioners spend more money on a new hobby or take a long-awaited trip, particularly as a result of having more free time. In the first few years of retirement, the spending on leisure activities such as excursions or package tours increase slightly. Towards the end of life, however, they decrease again significantly.
However, increasing life expectancy is accompanied by increasing expenditure on healthcare. Experience has shown that spending on health doubles in retirement. Towards the end of life, costs rise sharply, for example because of the need for nursing care. On average, a person spends three years in a nursing home towards the end of their life.
The main reason for reduced expenditure is all those variable costs incurred in everyday working life. For example, average transport costs in retirement decrease by half because commuting to work and business trips are no longer necessary. You will no longer need to spend money on items such as workwear, although you may incur higher expenses for leisure clothing.
You will also no longer need to save money for retirement, as you did in pillar 3a. Food and beverage costs are also likely to fall with age, as the bodies of older people usually require less energy.
To realistically estimate this budget, you should take into account your own preferences and buying behavior over the last few years. It also makes sense to check this with your last annual bank statement.
Many pensioners mistakenly assume that they will pay a lot less tax after retirement. However, taxes only decrease slightly. Although tax-relevant income falls (for example, salaries are replaced by pensions), tax deductions such as professional expenses or payments into pillar 3a are also eliminated. Assets that were previously tax-free will now be taxed, such as assets from pillar 2 that are withdrawn as capital and pillar 3a balances. The amount of tax depends in particular on income, assets and place of residence, and can be influenced very little.
At the start of retirement, your pension must be taxed in full as income. However, in pillar 2 you have the option of having a lump sum – i.e. a one-off withdrawal – paid out. You will then owe a separate capital payment tax, as you will when pillar 3a assets are paid out. Although this form of taxation is lower than for a pension, it should still be taken into account when planning your budget.
Once these assets have been paid out, wealth tax and income tax on interest and dividends earned are also due, although this is often less significant than the annual taxes on pension income. The decision to withdraw your pension fund assets as an annuity or capital or a combination of the two depends on many variables, such as your family situation.
When you think about your retirement, you are faced with some important decisions. Let’s draw up a plan together based on your personal wishes, so that nothing stands in the way of a relaxed financial future.
You should make your budget calculation when you have a large part of your professional life behind you, but plenty of working years still ahead of you. If your calculation reveals a possible pension gap, you should have enough time to close it.
Savings options that would allow you to put enough money aside at the age of 50 would be, for example, payments into a tax-advantaged pillar 3a account, or voluntary pension fund buy-ins. If you create several accounts or custody accounts in pillar 3a, you can withdraw from the accounts later in different tax periods and save on taxes in most cantons by avoiding higher progressive tax rates.
Timely budget planning for retirement will help you get a detailed overview and, if necessary, to save more. You can also decide which retirement model is suitable for you and whether it will affect your pension planning. If you continue to work beyond the reference age, for example, you may pay into pillar 3a for up to five years beyond the official retirement age.
When you reach the age of 50, it’s the right time to start considering what will happen after you retire. Timely budget planning for your retirement pays off, although it does require some effort. Once you’ve obtained the necessary figures, you can get an overview of all expected expenses and income in old age in just a few steps. If you discover a pension gap, you still have enough time to build up additional savings – for example through pillar 3a.
The calculation also provides you with a basis for decision-making if you’re thinking about early retirement or if you are a homeowner and are amortizing one of your mortgages.
Arrange an appointment for a nonbinding consultation, or if you have any questions, just give us a call.
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