50 – Time to focus on retirement planning

Is it just beginning to dawn on you that you will not be working for much longer? At least not in comparison with the time following retirement, which may last for many years or even decades? This is the phase when your thoughts first turn to retirement: no more work obligations, and more time for the family, hobbies, and travel. Retired at last! But will the money be enough?

Prosperity in retirement

To really enjoy life after retirement you need to have enough money. Experience has shown that there is no substantial decline in the cost of living after retirement. Especially when you have postponed many wishes and long journeys until later, but then without having your accustomed income. A low income often has to last for an increasing length of time. While a man could look forward to 13 years of retirement in 1960, he now has 20 years ahead of him. This is why it is important to establish an overview in good time so that you can strategically plan your retirement.

Putting aside reserves for special wishes

The first thing you need is a budget for the time following retirement. Plan a sufficiently large reserve for your special plans, in addition to your regular expenses. This provides room for special wishes and unexpected expenditure, whether it be a Caribbean cruise or a pricey renovation of your residential property. Your overriding concern is financial planning at an early stage − it's better to start 15 years rather than 15 months before retirement. This gives you enough time to make up for any pension shortfall. Maybe you can save some money in taxes as well. For instance, by purchasing pension fund benefits or with insurance in accordance with pension planning pillar 3a.

Purchase of pension fund benefits

If you would like to save on taxes, make up for a pension shortfall, or build up retirement savings capital for early retirement or partial retirement, it is recommended to make a voluntary purchase into your pension fund. By purchasing into your pension fund, you can increase your retirement assets, improve your retirement pension, and save on taxes.

Pillar 3a – a clever way to save

If you are saving for retirement and also wish to save on taxes at the same time, you should save under the restricted pension plan (pillar 3a). This is because it allows you to deduct your premiums from your taxable income. You enjoy full insurance coverage at all times and initially pay less tax as well.

With pillar 3a, you can either save through a bank – for instance with a 3a account or with securities – or you can choose an insurance product – such as savings insurance with waiver of premiums. Those who decide in favor of saving through a bank expect to have greater flexibility. However, modern insurance products are also flexible – and they offer you an essential advantage. If you become disabled as the result of an accident or through illness, the insurance company will keep up your savings premiums during this time. Of course, insurance solutions can also be combined with bank solutions.

Pension fund assets: Pension or lump-sum payment?

You have provided well for retirement and built up substantial retirement savings capital. But now you are faced with another important decision, usually involving several hundred thousand Swiss francs. Do you want to draw an annuity? Or would you rather have the capital paid out as a lump sum?

A secure income. Lifelong – with no ifs or buts. This is often the main argument in favor of an annuity. But a number of factors speak against it.

• Your surviving dependents get nothing. When an insured person dies, the surviving partner usually getsonly 60 percent of the pension from the pension fund, with the AHV pension being reduced at the same time. And adult children usually get nothing.
• If you choose a capital withdrawal, the total tax burden is lower because tax on the payment of capital is only due once.

In the case of capital withdrawal, the surviving dependents inherit the amount that has not yet been spent. And retirees can flexibly dispose of their pension fund assets, to renovate the home, for instance, or to pay the children an advance on their inheritance. Capital withdrawal also allows you to obtain a relatively secure income – provided that you budget sensibly and combine modern investment and insurance solutions.

An annuity or a lump-sum payment? Why not both?

Before retiring, it is important that you think about how you would like to withdraw your retirement assets. For many retirees, the best solution is to take part of the assets in the form of an annuity and to have the remaining capital paid out as a lump sum. The annuity ensures you the minimum income you require and you can fulfill a few long-cherished wishes with the freely available assets.

In the case of couples, it often happens that one partner takes the annuity and the other one the lump-sum payment. Here it is important to clarify in advance which partner is to receive what. Compare the pension terms, in particular the conversion rate and any benefits paid to the surviving partner, so that you get the best possible terms as a couple. It is worthwhile consulting a competent pensions advisor.