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Created on 07.12.2022

How families can save up for retirement and invest

When you start a family, a lot changes: your children’s welfare takes center stage, spending increases, and income tends to decrease. However, even at this stage in life, you should still think about retirement planning, and seize any opportunities to build up your assets. Find out what you need to know here.

Anyone who starts a family will soon feel the effects on their wallet. According to the Swiss Budget Advice Association, a young child costs between 300 and 400 francs a month to raise. And, as they get older, the costs increase. Up to the age of 20, Swiss families spend somewhere between 200,000 and 300,000 francs per child.

Fewer working hours = less income

Whilst spending increases when starting a family, income tends to decrease. This is because the majority of new parents cut back on work, as is shown by a survey by the Swiss Federal Statistical Office: in about 54 percent of couples who do not have children, both partners work full time. The figure for couples who have children, on the other hand, is just 13 percent.

This reduction in working hours leads to a fall in income. This, in turn, means the budget of most Swiss families is tighter. To find out how much money you will actually have at the end of the month, you first need to make your family budget fit for purpose. This can be done in two steps: first, get a general overview, and then see what your savings potential is.

Step 1: Get an overview

The first thing to do is find out what the actual status of the family budget is, and to work out your outgoings. To do this, draw up a list of your monthly earnings and outgoings. Check what items make up your outgoings. At the end, work out how much is actually left over each month as savings.

You should also get an idea of the bigger investments you plan to make in the coming years – whether these go towards education, a car or home ownership. Record these major items in a separate list to see how much money you are going to need in the mid-term for these investments.

Step 2: Identify your savings potential

Once you know exactly what your earnings and outgoings are, then you can set out a monthly budget. This will tell you where you are saving already, and where there is potential for more savings. Saving does mean buying less to an extent, but cheaper options of some items can be purchased without having to go without them altogether.

How much can families save on average

The amount of money your family will have left at the end of the month largely comes down to individual circumstances and your income situation. Based on figures from the Swiss Federal Statistical Office, the following picture emerges: families with a gross income of between 8,504 and 13,405 francs per month can save between 1,000 and 1,800 per month. This is about 40 percent of all families. For the highest-earning families, i.e. about a fifth of all families, this figure is about 5,000 francs per month.

Invest small amounts on a regular basis

You can invest these savings. But how? Private pensions are a good option for investing in assets. The fixed pension plan (pillar 3a) in the third pillar lets you choose between a retirement savings account and investing in a retirement fund. Whereas assets in a retirement savings account simply bear interest, retirement assets in funds are invested in securities.

Pillar 3a retirement funds are broadly diversified, and guarantee a mix of asset classes, such as shares, bonds and real estate. With a funds saving plan, you can invest smaller amounts on a monthly basis.

Find out more about individual retirement planning solutions in our article “What retirement fund is right for your circumstances?”.

By paying into pillar 3a, you not only have a chance to build up your assets for the future, you are also saving up in the here and now: payments into pillar 3a can be deducted from taxes. Upon payout, the retirement assets are taxed at a reduced rate.

In addition to paying into pillar 3a, it is worth setting aside a cash reserve of about three month’s salary.

Remember protection against risk

In addition to building up assets, you should also think about protection against risk. With life insurance savings, such as the “SmartFlex pension plan”, you can combine provisions in the event of death and inability to work. However, you can also simply take out risk insurance in the event of death and inability to work and protect yourself that way.

Opportunity to build up assets

If, having taken out protection against risk and retirement provisions under pillar 3a, a family still has funds available to them, they can invest these to take advantage of opportunities to build up assets if the risks are right. Here, the same rule applies to families that applies to all investors: diversification minimizes your risks.

Investment solutions with ETFs and index funds may also be a viable investment opportunity for families. Both “exchange traded funds” and index funds form part of the performance of an index. These often involve comparatively low costs and fees.

In summary

Through careful financial management, families can give themselves leeway for retirement planning. Beginners should first focus on the opportunities presented by a fixed pension plan (pillar 3a). Budget permitting, they may also invest in other assets, such as funds or ETFs. Given the critical role a long investment horizon plays here, it is well worth starting as soon as possible.

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