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I'm about to retire. What do I need to think about?

3 min and 30 sec reading time
I'm about to retire. What do I need to think about?

Preparing for retirement is a crucial stage in anyone's life. Even if it seems a long way off, it's essential to start planning for retirement as soon as possible.

On average, each citizen between 25 and 65 years old has CHF 12’838 in vested benefits!

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In this article, we'll help you understand how to prepare financially for retirement in Switzerland. We'll also look at key aspects of the Swiss pension system, in particular the second pension pillar.

1. Overview of the Swiss pension system

a. The three pillars of Swiss retirement

The Swiss pension system is based on three pillars. The first pillar is Old Age and Survivors' Insurance (AHV), which guarantees a basic income to cover vital needs during retirement. The second pillar is occupational pension provision, which aims to maintain the usual standard of living after retirement. The third pillar is private pension provision, which is optional and covers the gaps left by the first two pillars.

b. The second retirement pillar

The second retirement pillar, also known as occupational pension provision, is a compulsory savings plan that you build up throughout your career via your employer's pension fund. These savings form part of your assets and will be paid out to you on retirement in the form of an annuity or a lump sum.

2. How to calculate your pension?

a. AHV pension

The amount of your AHV pension depends on a number of factors, including the number of years you have paid AHV contributions and your average annual income. If you have always paid AHV contributions, you are entitled to a full pension. On the other hand, if you have contribution gaps, you will only be entitled to a partial pension.

b. BVG pension

The second-pillar pension is calculated on the basis of the contributions you have made during your working life and the regulations of your pension fund. The level of your retirement pension is determined by the capital accumulated in your second pillar.

3. What impact does early retirement have on your second pillar?

In Switzerland, the legal retirement age is currently 65 for men and 64 for women. However, if your pension fund regulations allow, you can take early retirement. In the event of early retirement, you will receive a reduced pension. If you postpone, the pension conversion rate will be increased and your retirement pension will be higher.

4. How do I organize my retirement?

a. Wealth assessment

It's essential to take stock of your assets if you are to approach your retirement plans with peace of mind. This is an integral part of the mission of a private banking wealth manager, who assists clients in this transition.

b. Pension or lump-sum?

Before choosing between these two options, it's important to find out how your pension fund works. Your banker and estate planner can draw up a financial plan simulating the different types of withdrawal envisaged.

5. Why save for retirement?

Saving for retirement makes sense for most people. The higher your salary, the higher your AHV contributions. As a result, your pension will be higher.

6. What type of savings should I choose for my retirement?

There are several ways to save for retirement, including traditional savings, investing in equities, paying off the mortgage on your own home and paying into pillar 3a.

7. Third-pillar benefits

The third pillar is not compulsory. If you have made third-pillar contributions, your total retirement capital will be higher. In general, you can withdraw your third pillar in a single lump sum (at the earliest five years before retirement age).

8. The challenges of early retirement

Early retirement is associated with financial loss. This is particularly uncomfortable for those who do not voluntarily take early retirement.

9. Early retirement with the second pillar

The second pension pillar can enable you to take early retirement. If your pension fund allows it, your pension will be lower than that of ordinary retirement, just like the AVS.

10. Tips for retirement planning

It is essential to work beyond retirement age, if necessary. It is also advisable to have as few fixed costs as possible, to make Pillar 3a payments, to top up the pension fund from the age of 50 and to reduce the mortgage on your own home.

In conclusion, retirement planning is a complex process that requires careful thought and financial preparation. That's why it's advisable to start planning your retirement as early as possible, and to consult a professional for personalized advice.

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BVG Retirement
Melvin Plumez

Melvin Plumez

Brevet fédéral de planificateur financier
Économiste d’entreprise HES