Early Retirement : Everything You Need to Get There.
In today's world, an increasing number of individuals wish to embrace their golden years for travel and new ventures. Many are contemplating early retirement, but how does it affect your income and lifestyle? Discover how our experts can assist you in strategically planning your retirement.
What is Early Retirement?
In Switzerland, the legal retirement age is 65. Nevertheless, under specific conditions, early retirement may be an option. AVS allows retirement up to 2 years earlier, while most LPP pension schemes permit early retirement at age 58.
It's important to note that early retirement entails significant financial consequences. Since you will cease receiving a salary, your pension will be reduced compared to the initial projection, and pension payments may be deferred until you stop working. Banque Piguet Galland advises clients to create a financial plan to assess the decision's impact, ensuring the viability of their project over time. Professional advice on complementary financing, pension planning, and investment solutions will be provided for a serene retirement.
When Can I Take Early Retirement?
Swiss law makes early retirement possible from age 58 (as of 07.2021). However, an AVS pension can only be claimed one or two years before the statutory retirement age, resulting in a reduced pension for life.
Moreover, some pension funds may allow contributors to access their second-pillar pension from age 58. Additionally, if your employer provides for it and your pension fund authorises it, you can receive a supplementary pension known as an "AVS bridge."
Submitting your early retirement application no later than the last day of the month you reach the statutory retirement age is crucial.
Retirement in Switzerland : Better Understanding of the 3-Pillar Principle
The Swiss retirement system comprises 2 compulsory pillars (AVS pension and LPP pension) and a personal, optional pillar built through savings and capitalisation.
1st Pillar or AVS Pension
The 1st pillar is a mandatory pension for all residents and workers in Switzerland, guaranteeing a minimum subsistence income of CHF 1,225 to CHF 2,450 per month, with potential supplementary benefits.
2nd Pillar or LPP Pension
Your LPP pension amount is based on career contributions, providing a monthly retirement pension. The compulsory pension is calculated with a conversion rate presently set at 6.8%. For instance, with a retirement capital of CHF 300,000, you are entitled to an annual pension of CHF 20,400.
Third-Pillar Benefits
Unlike the first two pillars, the third pillar is not compulsory. It's private, individual insurance. Throughout your career, you can save and capitalise on your retirement while still enjoying tax benefits that can be deducted from your taxable income. Contact Banque Piguet Galland to learn more about this private capitalisation system.
How to Apply for Early Retirement: The Steps Involved
To prepare for early retirement, follow these steps to assert your rights.
Claiming Your AVS Pension Early (1st Pillar)
We recommend submitting your application for early retirement to your fund at least 4 months before your retirement date. And no later than the last day of the month, you reach early retirement age. If you send in your claim for compensation after this date, you can only activate early retirement the following year.
Calculating Early Retirement : The Amount of AVS Pension
Early retirement affects your AVS pension. Consider these figures when calculating: retiring a year early reduces your retirement by 6.8% and two years early reduces it by 13.6%.
Claiming Your LPP Pension Early (2nd Pillar)
If the rules in your pension scheme allow it, you can draw your second pillar pension early, age 58, at the earliest. In this case, too, the amount of your pension will be reduced in proportion to the number of years you draw it early. Contact your pension fund to learn about the conditions and the amount of your early LPP pension.
Claiming 3rd pillar benefits early
In practice, it is possible to take early third-pillar benefits in a single payment, at the earliest 5 years before the minimum retirement age of 60.
Only your pension fund can give precise information on the rules and procedures for drawing your pensions under early retirement. Contact them several months before you take early retirement to arrange payment of your entitlements.
Advice on preparing for early retirement : plan your budget carefully.
Banque Privée Piguet Galland recommends that its customers plan their retirement carefully and draw up a provisional budget to estimate the level of income needed to cover their expenses. The general rule is that your fixed income should fully cover your fixed expenses. Then, you also need to consider your variable expenses (leisure, shopping, travel, going out, etc.) and significant investments, such as buying a car or renovating your home.
This budget planning enables you to identify gaps and difficulties during early retirement. There are then several ways of offsetting the loss of income associated with early retirement:
- Acquire movable and immovable assets and use the income generated by them.- Withdrawing part of your pension capital.
- Plan the payment of your life insurance.
Prepare your personal savings plan with Banque Piguet Galland
To cover any gaps in your income, you need to understand how the Swiss pension system works. Our experts are at your side to help you through this process. For example, we can help you choose the most advantageous solution, between paying an annuity or withdrawing capital from your LPP.
We can also help you build a solid personal savings plan with enough capital to cover all your needs. This can include several levers, which we will discuss in more detail.
3rd Pillar A
With 3A, you benefit from a maximum tax deduction and are exempt from wealth tax and tax on capital returns.
3B Pillar
With a 3B life insurance policy, take advantage of savings with additional cover for death and disability. Potential tax benefits are available in the cantons of Geneva and Fribourg.
2nd Pillar
Are you a company owner or self-employed? Our tailor-made pension fund meets your specific needs while allowing you to benefit from tax advantages.
Vested Benefits Deposit
The vested benefits deposit allows you to secure your pension assets while benefiting from a highly advantageous tax framework.
Bel Étage Insurance
If you are a senior manager or self-employed, discover the advantages of the Bel Étage pension plan, which allows you to manage all your invested assets in a personalised way.
Depending on your plans and needs, the experts at Banque Piguet Galland will help you choose the most appropriate solutions. Discover our pension planning offers now.
Contact us to find out more !
