Are you approaching retirement age and wondering how to ensure your financial future? Did you know that, according to a survey carried out by the newspaper Le Temps, the Swiss are more concerned each year about the level of their future retirement income? In 2022, 59% were concerned, compared with "only" 50% in 2020. To approach this new stage of your life with serenity and avoid unpleasant surprises, we advise you to set your financial goals for retirement by anticipating your needs. In this guide, we explain in simple terms how to go about it and the essential factors to consider.
To plan your budget, start by taking stock of your current expenditure and projecting it to the time of your retirement. To help you do this, you can refer to the Swiss consumer price index. According to the Federal Statistical Office, the consumer price index has risen by almost 12% in 20 years.
Start by dividing your budget into 2 main categories: fixed and variable costs.
Examples of fixed costs:
Examples of variable costs:
Once you've completed this exercise, remember to add in the inevitable contingencies because some major expenses arise unexpectedly and weigh heavily on your finances. These could include replacing your car or household appliances or installing auxiliary devices. In view of inflation and its long-term impact, systematically add a sufficient margin for each item.
Your projected budget is taking shape. Now, it's time to anticipate the changes after retirement. Certain expenses linked to your professional activity, such as transport costs, dry cleaning, and meals, will disappear. On the other hand, other costs will automatically increase with age. This is particularly true of supplementary insurance. LAMAL premiums have risen by more than 159% since 1996!
Because you'll have more free time, you may want to travel and enjoy more leisure activities. Statistically, these expenses tend to increase in the early years of retirement.
Determine whether your projections are realistic before considerably increasing or decreasing a given costs. For example, the costs of taxation are often higher than expected.
When you retire, your income comes mainly from the Swiss 1st and 2nd pillars, i.e. the AVS insurance and your pension fund. These generally correspond to between 60% and 70% of your final salary prior to retirement.
To determine the sum of your future AVS pension ask your cantonal compensation office for an advance calculation.
For the 2nd pillar, the pension fund certificate you receive each year shows the capital accumulated and the drawdown options available.
Add income from your assets (dividends, interest, annuities) to this basic income as well as any gainful activity after retirement. To do this, you must list all components of your wealth, whether financial (bank accounts, investments, life insurance, etc.) or real-estate (principal residence, second home, rental property, etc.).
In Switzerland, the legal retirement age is 65. However, you could choose to take early retirement.
From a financial point of view, this is not a trivial decision, as it can lead to:
If you opt for early retirement, you must, therefore, have sufficient capital to compensate for these reductions in income.
To manage your monthly costs, you need to decide whether you want to receive your 2nd or even 3rd pillar in the form of an annuity or a lump sum. This is another important decision.
As you can see, each option offers advantages and disadvantages in terms of security, flexibility, potential growth and taxation. To draw up a financial plan for your retirement, it's essential to compare these in detail, by taking into account your personal and family situation.
You now have a clear view of your costs and options for income. You may therefore define your personal financial goals and implement a tailored strategy to achieve them. Here are a few examples:
Once you have established your strategy, remember to reassess the situation regularly by monitoring evolution in your wealth. You may need to adapt your investments depending on market conditions or changes in your personal situation.
Planning your retirement in Switzerland is not easy, but it is well worth the effort. At Piguet Galland, we are at your side to help you build up the savings and income you need to fully enjoy your retirement and realise your dreams with complete serenity. Contact us!
Would you like to learn more about pension planning? Join our webinar on 29th February: Initiatives for a 13th AVS pension and secure and sustainable old-age provision, what are the challenges?