You should already start planning your retirement finances when you’re 50. List your current largest items on the income and expense sides, and compare them with your options and wishes after retirement. Include other income on the earnings side in your budget planning, such as earnings from securities or rentals, in addition to pillars 1 and 2. When they do their budget calculation, most soon-to-be retirees realize that their income in retirement will decrease by significantly more than their living expenses will. Very often, taxes also fall by less than anticipated.
How to calculate income shortfalls – an example
Let’s say you have an annual gross income of CHF 80,000 before retirement; once you retire, you need about CHF 60,000 a year to maintain your lifestyle. Pensions from the AHV and pension funds normally cover 60 to 70 percent of your last salary, in this case CHF 56,000. This yields an income shortfall of CHF 4,000 a year that must be covered by using savings. With a projected average life expectancy of 20 years after statutory retirement age, you need to have saved capital of around CHF 80,000.
Savings opportunities, which you still have time for at the age of 50, include:
- Voluntary purchases of pension fund benefits
- Using the tax-privileged pillar 3a
- Continuing to work – which allows you to pay into pillar 3a for up to five years beyond the official retirement age
- Holding several pillar 3a accounts/custody accounts – which is worthwhile as you can draw on them at a later time in different tax periods and thereby reduce your tax burden (lower tax progression).
Important: also consider timely planning for repaying any mortgage on your home.