With a satisfied look on his face, 60-year-old chemist Mathias Stäuble closes the thick binder labeled “Retirement.” His many calculations in Excel spreadsheets about the question of whether to get a “pension or withdraw a lump sum” have paid off. He and his wife Gertrud found a good formula for his retirement in four years’ time. Being the family’s main breadwinner and “accountant,” he experienced something completely new to him: for the first time, Gertrud and he talked about money and financial planning in concrete terms.

His wife is 58 and has been working again as a medical assistant for eight years. For a while now, she's been asking him: “Will our savings be enough to make ends meet in old age?” Gertrud hasn’t really dealt with the finances in the past, but she insisted on one matter with astounding resolve – she wanted to be sure that both of them had a high enough pension to cover their regular expenses. If they did, they wouldn't have to rely on their savings and could use them for other things and emergencies.

Take advantage of a good starting point

His wife’s unexpected resolve in this matter had made Mathias slightly nervous before that first advisory consultation. Afterwards, they were both positively surprised about the great starting point they were in. Mathias actually has a gross yearly income of 170,000 Swiss francs, pension fund assets of 1.3 million francs, employee shares worth 200,000 francs and, finally, a pillar 3a pension provision in the same amount, split between several accounts. Their single-family house has a market value of 800,000 francs with a mortgage of 650,000 francs. Gertrud has a gross income of 50,000 francs, a small amount of pension savings and pillar 3a savings of 50,000 francs. Together, they are entitled to an AHV spouse’s pension of 42,300 francs per year.

“It’s important to understand your spouse’s needs and to align them with your financial situation,” says Sascha Näf, a pension expert at UBS Wealth Management Switzerland. Women express their worries about the monetary future more frequently than men. Men often require – such as in this case – the confirmation of their own thoughts and calculations. A sound financial plan with a graphical illustration that shows the development of income and wealth over the years often quells the fears and concerns of both spouses.

In most cases, as with the Stäubles, it's not about the question of whether to get a lump-sum payment or a pension, but rather about the right mix of these components. According to Näf, there are interesting options for combinations, especially if both partners are employed. Often, both their pension funds offer different benefits. It pays off to compare them – especially the conversion rates, the services for surviving dependents in the case of death and also the financial health of the pension fund. “As a rule of thumb, the largest part of regular expenses should be covered by current revenue such as pensions, investment income and other forms of regular income, and assets for extraordinary expenses should be invested in the long term,” says pension expert Sascha Näf. When you at least choose the partial withdrawal option, a key advantage is that survivors can inherit assets should you die, which is often not the case when you draw a pension.

The difference is in the mix

What was the concrete solution for Mr. and Ms. Stäuble in the end? They also found that it was not an “either/or” scenario, but a combination. They decided to follow the rule of thumb and cover their yearly fixed expenses of 110,000 francs with pensions from the AHV and pension funds. The Stäubles withdrew Mathias’ remaining pension fund assets as a lump-sum to have more flexibility. At the same time, they planned to stagger the withdrawal of their pillar 3a assets. “This approach to pension funds and pillar 3a assets is an optimal solution,” explains Näf. The precondition for this was that the Säubles started saving in a targeted manner in good time, meaning from the age of 50.

The married couple distributed their pensions and savings into three asset pots. They each follow a different investment strategy and represent different needs.

The first pot is for current expenses and serves to maintain the level of cash. With the return and consumption from the second pot, the Stäubles primarily intend to finance planned vacations and potential health costs later on. This pot is filled with investment assets of around 400,000 francs that are invested strategically. In the third pot, the married couple is investing 300,000 Swiss francs over the long term.

After all was said and done, Mathias was particularly happy that it was possible to gift the children 150,000 francs. This is financed by withdrawals from pension fund assets as well as savings. The sharp-minded chemist Mathias Stäuble was finally happy and put the "Retirement" binder back on the shelf next to his tidy desk.

“I’ll have both, please”

If you’re faced with the choice between pension and/or lump-sum withdrawal, you should first answer and consider these initial questions:

  • How high have your expenses and earnings been (current budget)?
  • What will your life after retirement actually look like and will you need more or fewer financial assets (future budget) to finance it?
  • What are the pension fund regulations, for example, death benefits or in other important details (from pension fund regulations)?
  • How secure are you and are you interested in investing (own responsibility)?
  • What are the deadlines for withdrawing lump sums from pension fund capital (pension planning)?

UBS Pension planning

An approaching retirement poses many financial questions. Three elements are essential to planning your retirement:

  1. Create transparency about the financial situation of your pension provision and determine your personal wishes for retirement.
  2. Create a finance plan to optimize pension assets, for instance with pension fund purchases, staggering and the decision whether to draw a pension and/or withdraw a lump sum.
  3. Work out an individual investment concept for paid-out pension assets.

It’s also essential to execute and regularly review your plan consistently. This allows you to adapt to personal life changes in time. UBS pension planning will support you on this path with long-standing experience and competence.

This article was written by NZZ Content Solutions on behalf of UBS.