Klaus Schlosser (61) was positively surprised. When they went to their house bank, he and his wife Helena (64) actually just wanted to discuss the new mortgage for their condominium. During the consultation, however, the facility management project manager decided on a whim that he wanted to reconsider his upcoming retirement. Helena, a former real estate advisor, retired not long ago. But it will be some years until Klaus enters statutory retirement. They had always dreamed about traveling the world together. But Helena wouldn’t do that on her own. Klaus felt the need to change his personal circumstances to suit his wife’s new way of life. After all, who knows what life will be like in a few years? Couldn’t they start traveling together earlier? Only, what would that mean for their finances?

Klaus currently has a gross yearly income of 130,000 Swiss francs. Additionally, he has two 3a policies with maturities until 2022 of a total of 100,000 francs as well as a 3a account with over 47,000 francs. Helena is already receiving an AHV pension and a pension fund. They both recently purchased a condominium together worth 1.1 million francs. It also has a mortgage of 600,000 francs. Helena and Klaus were very proud not to have taken up such a high mortgage that they would have to pay it off in their retirement. They had also managed to set aside 20,000 francs every year.

Different motivations

“Age difference can be a motivation for early retirement, as is the case for the Schlossers,” explains Linda Pavan, a pension expert at UBS Wealth Management Switzerland. Other reasons could be wanting to spend more time with grandchildren, the urge to venture into something new in your career, or just being frustrated with your job. “In times of economic turmoil, for employees its worth thinking about the risks of involuntary retirement and to plan accordingly,” suggests Pavan.

Early retirement also means fewer benefits. For every year you enter into early retirement, as a rule of thumb eight percent is taken from your pension from the pension fund. In the case of Klaus Schlosser, a statutory retirement at 65 years means a pension fund capital of 523,000 francs or an annual pension of 33,000 francs. If he retires at 63, the pension fund capital would be reduced to 460,000 francs or an annual pension of only 28,000 francs. “The last years you pay into the pension fund are usually the most lucrative. However, the question is whether you can afford to skip them,” says pension expert Linda Pavan, speaking from her own experience.

Therefore, people mostly only enter into early retirement one to two years before the statutory age. After all, if you want to retire early, you prioritize the luxury of an early retirement over a higher income. You want to make sure you calculate this properly. The numbers didn’t add up for the Schlossers at first. Despite their savings rate, cash assets of 250,000 francs, investments of 130,000 francs and a relatively low annual budget for their retirement of 85,000 francs, retiring early would have created a big income gap.

The partial retirement option

What was the solution? “An ideal solution would be partial retirement,” says Pavan. This would provide the couple with financial security. It would still be possible for them to reach the maximum AHV pension and they could still make tax-deductible 3a payments. Moreover, both of their current expenses would be covered by Klaus’ partial income and Helena's AHV pension. An often overlooked partial retirement option is working part-time, for instance at 50 percent. Depending on the pension fund regulations, this option would allow you to keep the pension benefits you have been getting from your employer. Klaus would have fewer financial sacrifices to make than with an early or partial retirement. He now wants to discuss this with his employer and look at concrete options with them.

Klaus is already certain of one thing: Being able to spend more time with Helena earlier, without having to make too many financial sacrifices – that would be the cherry on the top. Apart from traveling, he would also love to take his motorbike out to the mountains more often. Klaus and Helena would then not only feel financially secure in their retirement, but they would also be able to indulge in small luxuries from time to time.

The key questions

If you are faced with the choice between early retirement, partial retirement or part-time work, you should first answer and consider these questions:

  • What does your spouse or partner think about your plans and expectations?
  • How early does your pension fund allow you to enter retirement? Will you have enough income?
  • Does your employer and the pension fund regulations allow for partial retirement or part-time work as alternatives – and what would be the financial consequences of these?
  • Would it make sense to buy into the pension fund to increase your pension when you partially retire?
  • Can you withdraw your pension early or are other interim solutions possible, such as withdrawing pillar 3a assets early?

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.