Rebecca Scheidegger (57)*, an industry head of department, was fortunate. The pension expert at her new bank said she could retire ahead of schedule after all – in two years – though her pension fund only allowed early retirement from the age of 60. Her assets, her tenacity and a finely balanced management plan had made it possible.

From the first moment at the counter in her UBS branch, Rebecca felt her concerns were being taken seriously. This had not been the case with her previous bank, where nobody could answer her question satisfactorily on whether she could give up her increasingly demanding, albeit exciting, job as a manager.

Take the long view when planning to optimize your assets

As it happens, Rebecca Scheidegger, divorced with no children, has managed to accumulate substantial wealth over her intense working life. She has a total of 1.2 million Swiss francs in her account and restricted pillar 3a pension account. She also has 1.4 million francs in her pension fund, and a condominium worth 900,000 francs. After she stops working, Rebecca, a cosmopolitan woman, finally wants to travel with her partner, but maintain her current standard of living at the same time. To do so, her capital requirement per year will be 90,000 francs.

“If you want to retire from your working life early, you have to start preparing early. In Rebecca Scheidegger’s case, we managed her assets in such a way that we could bridge the income gaps that early retirement would bring,” explains UBS pension expert, Sascha Näf. The plan rests on a proven asset concept, which consists in dividing up the assets into three asset pools, all of which serve different goals (see graphic). “Cash may offer you security, but it doesn’t give you any returns. In fact, you lose money through inflation and taxes. These factors are relevant to long-term asset optimization,” Näf points out.

The asset concept should normally be planned five years in advance and involve diversified investments. Rebecca decided to sell her condo. She put the funds she earned from this in the second pool, for which she chose a balanced investment strategy to secure her cost of living and to help her realize her lifetime goals. She put her long-term investment securities in the third pool because she didn’t absolutely need this part of her assets and she might like to bequeath it to her nieces one day. Rebecca has budgeted 500,000 francs for her short-term liquidity needs, i.e., her cost of living in the first five years after she retires and until she reaches statutory retirement age, and she has allocated this amount to her first asset pool.

Explore market development in scenarios

When I started planning my finances, I didn’t know what was too much and what was too little,” admits Rebecca. Seeing how my assets could develop in various market phases in a graph, plus the structure of the asset pools and the guidelines given to me by my pension expert have convinced me that this is the right solution for my needs.” Using statistical tools, the pension experts drew up scenarios for a variety of future market development scenarios: optimistic, average and pessimistic. This allowed for a transparent view of projected assets with different return expectations.

Rebecca’s just happy that she’s taken care of her assets early on. “Learning about investing only after you have your pension fund savings paid out would be significantly more difficult than during employment,” says Näf, describing his experience. This is true because risk tolerance depends on the individual and can only be determined in wealth management through investing experience.

According to the UBS expert, it’s also important to adjust the financial planning of a long-term investment horizon regularly. He compares the process with planning a road trip. “When you’re on your way to your vacation destination and you hit a traffic jam, you should find a better way to get there,” explains Näf. His client, Rebecca, is already looking forward to her first trip with her partner to Barcelona. She wants to finally see the grand cathedrals of the modernist architect Antoni Gaudí and take a stroll down the city’s most famous street, Las Ramblas.

*Client name has been changed

The earlier, the better

Approximately ten years before retirement, it's important to:

  • have an overview and transparency about your assets such as real estate, accounts and securities, pension savings in the second and third pillars, life insurances and entitlements;
  • One the one hand, have an overview of your current budget and your budget when you retire, and on the other hand, inquire about the income amount from the first and second pillars. Will this result in a gap?

About five years before retirement, it's important to:

  • Talk to your partner and think about when exactly you want to retire;
  • decide how much of the pension fund assets you want to withdraw as a lump sum (the amount has to be registered up to three years in advance) and how much you want to draw as a pension;
  • Take tax consequences and potential staggering into consideration and potential staggering when planning withdrawals from your pension savings – if you’re married, do this together;
  • Check if an existing mortgage is still affordable after you retire.

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.