Financial planning for old age
Secure your income: plan right for retirement
After retirement, it is important to make the best use of your savings to ensure a regular income. Read on to find out how this can be achieved.
Content:
Content:
- To plan your income for retirement, you need to know what your expected income and expenses will be.
- You can close income gaps by paying regularly into pillar 3a or by making voluntary purchases into the pension fund.
- After retirement, you can reorganize your finances and continue to save strategically.
- To the conclusion
Many people look forward to the start of their retirement and want to maintain not only their accustomed standard of living but also to fulfill dreams that they had little time for during their working years. What we often forget, however, is ensuring a decent income after we stop working.
We lay the foundation for our income after retirement many years in advance. It is based on three pillars: the state pension scheme (OASI), the occupational pension scheme (BVG) and voluntary pension assets from pillars 3a and 3b. These are offset by the cost of living.
If you want to plan your retirement thoughtfully and proactively, you will need a solid financial plan. This shows you exactly how your expenses, income and assets will develop until retirement and in the years that follow.
As a first step, ask yourself how the payout of your pension fund assets and the withdrawal of your pension fund benefits will affect your available assets in the long term. This will help you decide whether and how much pension fund capital you should withdraw as a pension and how much you should have paid out.
You should also consider inflation (rising prices). The longer your planning horizon, the greater the impact. Inflation reduces the purchasing power of your assets and thus increases your income requirements over the years. For example, if you spend CHF 5,000 per month today, with annual inflation of two percent you will need CHF 6,100 in 10 years to maintain your accustomed standard of living – and almost CHF 7,500 in 20 years.
Last but not least, it is essential to calculate your income from the OASI and your pension fund (pillars 1 and 2). If you also have savings in pillar 3a and/or 3b, the capital depletion from this is also included in the calculation. This is offset by your expenses, including the cost of living, housing costs and taxes. In addition, a liquidity reserve should also be part of your financial planning so that you are prepared for unforeseen events.
Consider the following questions early on to secure the income you want after retirement:
- What financial needs would I like to satisfy?
- What benefits will I receive from OASI and the pension fund?
- Do I have income gaps?
- What additional sources of income (for example, from pillar 3) do I need?
- How can I reduce my tax burden?
- How large should my liquidity reserve be?
In addition to these financial questions, you should also clarify your future lifestyle. Be honest with yourself and also talk with your family and close friends about topics that might seem far off:
- How are you planning to spend your time after you retire?
- Will your housing situation change?
- Would you like to financially support your children, godchildren or grandchildren after you retire?
- Do you want to fulfill an expensive dream like a world trip, or do you have major purchases coming up (renovations, appliances)?
Plan your retirement at an early stage
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.
Many people underestimate how dramatic pension gaps can be. And how quickly they can come about. Part-time work, an extended parental leave, or a stay abroad can quickly lead to a loss of income after retirement. But how can you fill or close an income gap?
However large your gap, you have options; for example, you can pay regularly into pillar 3a or voluntarily buy into the pension fund.
In any event, it is worth carefully planning your expenses in retirement. Perhaps you have saved up enough capital and can use it to help finance your desired standard of living. You can easily find out with our calculator whether you have a pension gap.
As a rule of thumb, the calculated income gap per year × 20 equals the capital required to close the gap. This assumes an average life expectancy of 20 years after retirement. However, women, on average, live for up to 24 years after retirement.
Will you have enough money for regular retirement in the future?
Will you have enough money for regular retirement in the future?
The investment strategy ensures liquidity
Sufficient liquidity helps you to fulfill short and long-term financial obligations on time and without bottlenecks. For this reason, we recommend you always ensure you have a buffer, even in old age, which you can use for unforeseen shortfalls.
No matter how early you start building up a financial cushion for retirement, you should take the necessary liquidity into account when building up your assets. Invest your assets in such a way as to ensure that both your long-term needs are met and that you have sufficient liquidity.
Find out in a consultation with an expert how large your “liquidity buffer” should be and how best to align it with an investment strategy.
Optimization with pillar 3a
Pillar 3a allows employees to deposit funds up to an annual maximum amount of CHF 7,056 (as at 2024), for example, to a UBS Fisca 3a. Self-employed persons can invest up to CHF 35,280 or a maximum of 20 percent of their net income in pillar 3. All contributions are deductible from taxable income. The earnings are also exempt from income tax during the term.
Your assets from pillar 3 are a tax-privileged supplement to your pension income (OASI, pension fund). You can withdraw them at the earliest five years before you reach normal retirement age.
Worth knowing
You also have the option of splitting your accumulated assets between several pillar 3a accounts. If this is the case for you, it is worth planning the payout in stages over several years. This way you optimize liquidity. At the same time, you save on taxes in most cantons, as taxes on payout are progressive – in other words, they are based on the amount paid out.
Pillar 3b and your personal pension plan
Unlike pillar 3a, pillar 3b is (considered) an unrestricted pension plan and is therefore subject to less stringent requirements. However, as an unrestricted pension plan, it does not enjoy any tax advantages, with a few exceptions in the case of life insurance.
To save with pillar 3b, you also need a customized strategy based on your personal investment profile. Such a profile is mainly composed of your risk appetite and risk capacity. To set this up correctly, you are advised to seek expert advice. Your investment profile can show you how you can make the best use of pillar 3b to secure your income in retirement.
Shortly before you retire, you can still take steps to secure your income. For example, homeowners might find it worthwhile to withdraw part of their pension fund assets as a lump sum to amortize their mortgage. If you decide to do this, you need to do so well before you retire. Withdrawing a lump sum means a fundamental change in your financial plan. Consider well in advance that you will then have less regular income at your disposal, which will have to be compensated for by using up additional assets.
Worth knowing
Our tip: contribute all pillar 3a amounts due for the year of retirement before your retirement date. You will save more on taxes.
Steps to take after you retire
After you retire, you can still take steps to secure your income, for example, by reorganizing your finances. Ideally, you should be able to cover your capital requirements with regular income from your OASI pension and pension fund – and by carefully reorganizing how you consume your assets. Always make sure to adjust your monthly income to reflect changes in your life. Your liquidity reserves for emergency situations should also always be covered.
If you still have some capital left over, you can invest it in securities to continue providing for your future. However, your focus here should be on security rather than returns, as you will actually want the money to be available you later on.
As such planning requires a great deal of knowledge and becomes increasingly difficult to manage with age, you may find consulting with a financial planner worth your while. In the best case, the specialists should also be able to assist you with tax matters.
Securing a decent income in old age is essential for a financially comfortable retirement, which requires a financial plan and careful planning. Of course, not everything always goes as we imagine – so try as best you can to negotiate any stumbling blocks and take changed circumstances into account.
If you take action early on, you can start your retirement with greater peace of mind.
Disclaimer
Disclaimer
