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Pension planning: Why it makes sense to save for retirement

January 22, 2020

AHV, pension fund, third pillar: The Swiss pension system is facing societal and financial challenges. In an environment of negative interest rates and redistribution between the generations, every second Swiss citizen worries about their retirement pension. This according to the 2019 Worry Barometer, an annual study of the Swiss population's everyday concerns carried out by Credit Suisse. Is it time to take retirement provision into your own hands? Which strategies are effective? We have searched for answers to these questions.

Is saving at all worthwhile in today's low interest rate environment?

FinanzFabio: Yes, definitely. But not in a savings account. I think it is important for everyone to have a nest egg that will cover three to six months fixed expenses. Likewise, tax payments should be accounted for at the beginning of the year and you should contribute as much as possible to pillar 3a. Everything beyond that should be invested.

Monika Bütler: Yes, saving is worthwhile – for most people, at least. Interest rates are low, but anyone who wants to continue to enjoy living above the poverty line after retirement needs to save – even more so today than in the past.

What is your personal approach to saving?

Monika Bütler: Since my school days, personal financial independence has been immensely important to me. I always saved as much as I needed to feel independent. And, of course, I apply the same philosophy to old age. That's why I take advantage of the pension opportunities offered by the second and third pillar, invest in shares and pay off the mortgage for my house.

FinanzFabio: In the low-interest phase, traditional saving has become obsolete. For me personally, 10,000 francs in my savings account is enough. With this I can pay my fixed expenses for three months. Everything beyond that I invest in low-cost ETFs (Editor's note: Exchange Traded Funds) However, I would like to point out that I have already fulfilled my dream of owning my own home and will therefore not have to depend on a large amount of money in the foreseeable future.

It's better to think about your money one day a month than to work a whole month for it.

Fabio Marchesin

What are your three very personal tips for saving for old age?

FinanzFabio: I like to focus on fixed expenses. This pays off not only in the short term, but also in the medium term. By doing so, you can easily optimize 200 francs a month, which adds up over the years. After that, Pillar 3a has high priority for me – above holidays, above going out and above the car. In addition, I would like to encourage everyone to not let inflation reduce the money in a savings account, but to invest it profitably.

Monika Bütler: My number one tip is to work – at best even beyond the regular retirement age. Tip number two is to keep fixed costs low. And then, of course, contribute to pillar 3a, top up your pension fund from the age of 50 and, as a homeowner, reduce your mortgage.

Retirement provision is in a state of imbalance; the older generation's pensions are financed by the young: Are you concerned about the generation gap?

Monika Bütler: As a mother of two teenagers, I am particularly concerned about the generation gap. We must not burden the young with the financial debts of retirement provision – redistribution must be curbed. I hope that Switzerland will find a way out of the pension crisis. I am optimistic that many of the pension funds are already well on their way.

FinanzFabio: I take care of my own old-age provision and do not rely on the system. The older generation owes us young people money, they live at our expense. I wish I could have every cent that I paid into the AHV back in my account tomorrow and take care of my retirement provision myself.

As a mother of two teenagers, I am particularly concerned about the generation gap.

Monika Bütler

What topics around retirement provision concern you in general?

FinanzFabio: It worries me that the population knows so little about retirement provision. My parents are about to retire and I find that they have been taught too little about financial matters. I don't understand why everyone has to go out of their way to get information themselves and why, for example, we are not informed about personal finances five minutes before the TV weather report every day. I am already asking myself how and whether we can still save Switzerland from poverty in old age. We definitely need new solutions.

Monika Bütler: The problems of underfunding for retirement provision and care in old age are still underestimated. We are living longer and longer, and people also underestimate the resources needed for a longer life expectancy. After all, it is not just a financial question, but a social one. I ask myself whether not working for more than 20 years, and often becoming socially excluded as a result, really makes sense.

What are your solutions and visions for retirement provision?

Monika Bütler: We have to make sure that fit and active people do not simply retire from working life at 65 or even earlier. In addition, we should strengthen self-provision, so that there is enough left for those who cannot provide for themselves. Retirement provision should be more flexible and even more closely interlinked with the active period – and I include childcare and care for the elderly in this context.

FinanzFabio: My vision: Anyone who wants a child in Switzerland pays 7,500 francs into a share fund. The Swiss state pays in the same amount, giving you a capital of 15,000 francs. Assuming a conservative annual return of 7 percent, around 1.2 million will be paid out on retirement at 65. Even with a life expectancy of 100 years, the annual pension would be significantly higher than with the current AHV maximum pension. And the pension funds should definitely be exempted from negative interest rates.

What does wealth mean for you? How is your retirement provision doing? Are you already saving? Whether you want to be financially independent in old age or want financial freedom in everyday life, take your future into your own hands. It's never too late.

5 saving tips

Take responsibility for your money with our five saving tips:

Create an annual budget: Where does your money go?
Consume consciously: What is really important to you?
Set yourself a motivating savings target: The more specific, the better.
Gather up your change: Empty your purse every night.
Find allies: Make saving into a game and share tips.

We wish you every success!

Monika Bütler (born 1961)

Professor of Economics at the University of St. Gallen, specializes in the topics of social security, the labor market and political economy. For her, wealth means also being financially independent after retirement.

Fabio Marchesin (born 1987)

A financial planner, also known as the financial blogger FinanzFabio, wants to convey important financial knowledge to a broad audience in a simple way. To him, wealth above all means freedom. His motto: "It's better to think about your money one day a month than to work a whole month for it."