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Created on 17.01.2019

What do I need to bear in mind if I retire early?

Let’s be honest: we have all looked forward to the day we no longer have to work at some point in our lives. Finally being able to enjoy life as a pensioner is a lovely thought, and early retirement will allow you to reach this goal sooner. There are, however, some basic principles you should bear in mind if an early retirement is what you want. We have some tips for you in this article.

Young people all have very different ideas of what life in retirement entails, though the majority are confident they will enjoy retirement – and a long one at that. After all, life expectancy is going up and up as the The link will open in a new window statistics (in German) show. Politicians have also recognized this, so they have tried to adjust funding for things like old-age and surviving dependants insurance (AHV) and pension funds to the increasing life expectancy. Anyone who wants to enjoy good health and truly active years once they retire for as long as possible shouldn’t really leave it too long to start thinking about early retirement, especially given that it is not for everyone.

Almost one in two people enjoys an early retirement

You certainly aren’t the only one considering early retirement. According to the Swiss Federal Statistical Office, nearly a half of men and women in Switzerland take out savings from their private pension and their work pension early on. The majority, however, do not take out their AHV pension until normal retirement age. Only 9% of men and women take out their AHV pension before they turn 65 and 64 respectively.

Those that make up this 9% benefit from a statutory advanced withdrawal, specifically staggered AHV withdrawal, though this entails making certain compromises. A person can take out their pension from the first pillar (i.e. state AHV) a year earlier or even two. Should they withdraw their AHV pension a year in advance, their pension is reduced by 6.8% for the duration of their retirement, and this figure rises to 13.6% if they do this two years in advance.

And so, it is a good idea to weigh things up and make some calculations if you do decide to retire before statutory AHV age. Specifically, you should consider capital withdrawal options from your mandatory (i.e. AHV) pension and your work pension (pension fund), and assets from your private pension.

We do not always retire early out of choice

When some people retire early, though, it is not of their own volition, indeed it can occasionally happen before the statutory retirement age if a person is made redundant. This comes with certain challenges. For one thing, the person loses income and savings opportunities, and retirement benefits and capital retirement sums end up being lower because the person has less time to accumulate them. If they are not employed, then a person who retires early will also no longer be able to pay into pillar 3a.

Want to retire up to seven/eight years prior to statutory retirement age?

The minimum age for making an advanced work pension withdrawal from pillar 2 is currently 58. Several rules do, however, come into play with pillar 2. Depending on rules on the pension fund in question, sometimes an advanced withdrawal is either not possible at all or only under certain conditions.

If, like the majority of people in Switzerland, you only take out your work pension early, you ought to check whether your pension fund provides a supplementary pension (known as bridging pension benefit) until you reach statutory AHV retirement age. The employer often takes responsibility for this pension as well. It is a very good idea to ask your HR department.

Bear in mind that in the event of an advanced withdrawal, your old-age AHV pension will be reduced for life.

So, the question of early retirement depends largely on how a person’s financial situation has evolved throughout their working life, and whether the benefits they expect to gain from their AHV and their pension fund will set them up for a comfortable retirement.

If I do plan to retire early, what do I absolutely have to bear in mind?

Given that we can expect statutory retirement age to go up in the coming years, the topic of early retirement may become increasingly important. We are going to show you what you need to bear in mind here:

  • Anyone looking to retire early will have to start financial planning early on. You ought to start planning very carefully by the time you turn 50 at the very latest, seeing as you can still make important financial decisions at this stage.
  • Start investing in a private pension early on and make the most of tax benefits. By doing this, you will not have to pay income tax or wealth tax on the capital you have invested until you withdraw funds from pillar 3a. This will also be paid out to you separately from the rest of your income at a fixed rate, depending on the canton or the municipality.
  • Open several pillar 3a accounts if necessary seeing as you will have to pay taxes when you withdraw funds. The higher the sum, the more taxes you may have to pay. By staggering the withdrawals over the space of several years, you can save on taxes. When you withdraw your retirement funds, always be sure to check the tax requirements of your canton of residence.
  • A retirement savings account is the first step in the right direction. However, it is also worth considering setting up a retirement fund. You decide what potential returns you want.
  • A capital-growth life insurance plan can also potentially tide you over until you officially retire. Bear in mind, however, that the insurance benefits paid out need to tally with your own retirement planning.

It’s worth planning your retirement early.

If you want to retire early, you should start planning early too. If you have already made up your mind that you do not want to work until statutory retirement age, then follow the tips above however old you are. If you are close to officially retiring, have a look at the article “I’m drawing close to retirement – what do I need to know?”. Whatever you decide, these tips will help you to one day enjoy what the young people in the video are already dreaming about today.

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