Retirement planning
Budget planning for retirement – how to do it right
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.
Content:
Content:
- Early budget planning ensures financial security after retirement.
- Taking stock and creating a forecast of your expenses will show you where costs will increase or decrease.
- It’s also essential to consider the expected tax burden.
- You should start planning your retirement at least 15 years before the date of retirement, in order to identify and close pension gaps.
- To the conclusion
Reaching retirement age raises many new questions. Will you have enough money to maintain your standard of living? Or will you need to make cut costs in everyday life because of a pension gap?
A pension gap is a real risk after retirement. OASI and occupational pensions are only equivalent to 60 to 70 percent of your previous income after retirement. However, expenses often decrease less than expected after retirement and remain at just under 70 to 90 percent 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.
In order not to worry about your finances when you retire, it’s worth planning your budget in detail well before retiring. A closer look at your expected income and expenses in retirement will bring 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 out the exact amount of 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.
In addition, you should calculate how much credit 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.
First, you should calculate your expected expenses so you can compare them with your expected income. To start with, 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.
Next, categorize all costs that will remain after retirement, such as housing costs, health insurance premiums as well as subscriptions or telephone bills. Housing costs will continue to account for a large part of regular costs. As a rule of thumb, housing costs should not exceed around 30 percent of your income. For quarterly or annual costs, you should calculate a monthly average to combine them with the other items. It’s more difficult to calculate those costs that will change after retirement. In the next step, check what your everyday life could be like in old age and how it will affect your budget. Some costs will no longer arise after retirement but other, new costs will be incurred.
How is your retirement provision?
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.
Which costs will increase?
As they gain more free time, many pensioners spend more money on a new hobby or go on a long-awaited trip.
However, increasing life expectancy also brings with it 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.
Which costs might decrease?
The costs that reduce the most will be those variable costs incurred by going out to work. For example, average transport costs at retirement age 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, such as in pillar 3a.
To be able to realistically estimate this budget, you should take into account your own preferences and your buying behavior over the last few years. The same applies to food and drink, the consumption of which usually decreases only slightly after retirement.
What taxes will you have to pay?
Many pensioners mistakenly assume that they will pay a lot less tax after retirement. However, this is not the case. Even if your income decreases at retirement age, your tax bill can be almost the same. This is often due to the elimination of tax breaks such as for professional expenses or payments into pillar 3a.
At the beginning of retirement, your pension must be taxed in full as income. However, in pillar 2 and 3 there is also the option of having a lump sum – i.e., a one-off withdrawal – paid out. If you do this, a separate tax on the capital withdrawal is due. Although this form of taxation is lower than for a pension, it should still be taken into account when planning your budget. After the credit balance has been paid out, wealth tax is also due. Pension or lump sum: which option is best for you depends on various factors such as your family situation.
How much money can I save in pillar 3a over the years?
It pays to save for retirement – even smaller amounts. And the earlier you start with pillar 3a, the more comfortable your retirement. Calculate here how much you can save over a period of years.
You should make your budget calculation when you have a large part of your professional life behind you, but plenty of 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 rates of tax.
Timely budget planning for retirement will therefore help you get a detailed overview and, if necessary, save more than before. In addition, you can also decide which retirement model is suitable for you and whether it influences your pension planning. For example, if you continue to work beyond the reference age, you may pay into pillar 3a for up to five years beyond the official retirement age.
If you have reached the age of 50, the time has come 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 part of your mortgages.
Disclaimer
Disclaimer
