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Created on 13.12.2018

I'm drawing close to retirement – what do I need to know?

Retirement will be just around the corner in a few years. This mainly means one thing: a lot more time on your hands. Time for hobbies, travelling, family or doing as little as you please. But there are also changes when it comes to finances. We’ll show you the questions you should ask yourself to prepare for the best possible retirement without a worry in the world.

Reaching pensionable age may seem a long way off – but sometimes it arrives faster than you think. This is why it’s crucial you not only dream about your retirement but also start to plan it actively. Ideally, you should start with pension planning around ten to fifteen years prior to reaching retirement. This allows you to prepare well for entering retirement and undertake any necessary measures or decisions. By asking yourself the following questions, you will establish a basis for making good investment decisions.

Am I an early retiree or a postponer?

The first question to ask is: when do I want to (or when I am able to) retire? Do you want to carry on working for another nine to ten years and enter retirement at the usual age of 64 or 65? Or would you prefer to enjoy the retiree life somewhat earlier? Early retirement does not come cheap – quite the opposite. Many employees who would like to start retirement early cannot do so because of a lack of funds. You can find more on this in the section “How is my retirement plan looking?”. It is worth starting to think about potentially taking early retirement – after all, this decision will also have an impact on your asset growth and retirement strategy. You can take early retirement from as young as 58 years of age and start a whole new phase of life after your career. Despite most people looking forward to retirement, there are some who want to continue working after reaching AHV retirement age – it is possible to postpone retirement to as late as 70 years old in consultation with your employer. You can also phase yourself into retirement step-by-step such as by reducing your working hours – provided your employer is willing. So there are a wide range of options between early retirement and postponing retirement – with many different ways of bidding farewell to the world of work. 

How is my retirement plan looking?

It’s just as important that you get an overview of where things stand with your retirement planning and your assets in general. Get all the documents that you need together. These include tax returns, pension fund statements and rules, pension certificate, statements from your retirement account(s), account statements, custody account overviews and evidence of home ownership (including mortgage documents concerning items that need to be deducted from your assets) or life insurance policies. Then the next thing to ask is: How much money do I have in my retirement savings? And how much do I need? You need around 70 to 80 percent of the budget you spend each month for your life after retirement. AHV and your pension fund generally do not cover this amount in full. That’s why it’s so important that your private retirement planning is on course: Have you always used the option for payments into pillar 3a? Is there anything you can optimize here in the coming years? Is it worth paying into your pension fund so you will receive a higher pension later on? There may be potential for increasing your capital in the 3rd pillar using a retirement fund to achieve higher yields. You can find out more on this topic in the article “Retirement savings account 3a versus retirement funds – how to get more from your retirement planning”.

How do I want to draw my pension money?

There are various options for accessing your pension fund assets: either have them all paid out in one go, draw on your capital each month as a pension, or choose a combination of the two. Of course, this all depends on how you want to spend your life as a retiree. Will you move abroad? Are you looking to buy a holiday home? Or will you keep on living as you did before and draw on your pension as an income each month? For most people, it is wise to cover your living expenses each month with a pension, and then draw on the rest as capital. You can also look into a staggered payout from your pension fund and check whether your pension fund can transfer the money to several vested benefits accounts, for example. This could help you slightly reduce the tax burden you face when drawing on your pension fund assets. You can find more on this topic under “Make tax savings with pillar 3a”.

You should also look into the conversion rate for your pension fund. This rate determines how much money you will receive each year as a pension. Here is a specific example: if you have CHF 80,000 credit in pension fund assets and the conversion rate is 6.8%, you will receive CHF 5,440 annually after retirement (6.8% of your capital). The minimum conversion rate for mandatory pension fund assets is set by the Confederation; for any funds beyond this threshold, the conversion rate is set directly by the respective retirement savings foundation and is generally far lower than the rate set for the mandatory assets. This means the conversion rate is an important indicator of the level of your old-age pension. And those retiring early need to be aware that the conversion rate will be lower – for both the mandatory and non-mandatory assets.

How does my budget look after retirement?

You need to set a precise budget for your life as a pensioner. How much money will you need each month for living expenses? And how can you cover these? Don’t forget that many expenses which you used to deduct for tax purposes while you were working will no longer be tax-deductible (professional expenses, payments into pillar 3a). You will quickly find out whether you have an income gap that needs to be covered and if you do, the extent of it. You can find budget plans online that compare your pre- and post-retirement budgets in a clear and simple way. You can find basic information on budgets in our article “Take control of your finances with the right budget”.

How should I change my investment strategy?

You may also be able to increase your assets using targeted financial investments depending on the age at which you start planning your pension. This includes your private pensions using pillar 3a: benefit from stock market opportunities over the long term using funds from your retirement savings account 3a, e.g. by investing in a retirement fund, but be aware that the equity component may vary depending on your risk-return profile. How you decide to draw on your pension money also has an impact on your investment strategy: if you take your capital in one lump sum, this will give you a large sum of money and the flexibility to invest it in various financial instruments. If you want to draw on the money accrued in your retirement account as a pension, this will give you a certain amount of security and will feel familiar to the monthly salary payment you used to receive. With a combined approach, pension payments will give you a secure foundation but you will still have some capital to invest as you wish.

You will need to review your investment strategy once you pass retirement age since your goal will no longer be building assets, it will be securing an income – this is essential for enjoying your retirement without having to worry about money.

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