I'm planning my retirement... early
STOPPING WORKING BEFORE THE LEGAL AGE:A PRICE TO BE PAID DEPENDING ON YOUR LIFE CIRCUMSTANCES
- knowing the pension benefits
- being clear about the financial consequences
- estimating the budget required
PREPARE WELL IN ADVANCE: GAIN ON THE AMOUNT OF INCOME WITH GOOD PLANNING
- knowing the elements which could significantly influence retirement
- estimating the quantifiable impacts on the budget in the event of early retirement
OPTIMISE YOUR SITUATION: MAKE THE BEST PROFIT
- combining provisions and tax benefits
- taking advantage of legal benefits, in particular for the acquisition of a real estate asset
- finding the balance which will ensure a trouble-free retirement
Retirement and early. If the combination of these two words is the what your dreams are made of, it is important to be well informed on the conditions and consequences of taking early retirement. In effect, you need to prepare early enough to allow you to benefit fully from these additional years.
In order to be able to stop working before the legal age of retirement (set in Switzerland at 65 for men and 64 for women), it is essential to prepare the financial aspect well and to estimate the budget required for retirement. The earlier you start to think about it, the better you can meet your needs in the long term.
Am I prepared to make concessions?
Don't forget that taking early retirement leads to the loss of working income, and thus to a reduction in the income paid, while your other outgoings remain unchanged and you have to continue paying tax.
It is for this reason that calculation of a budget is indispensable. You have to take into account not only your current expenditure and your recurring expenses (rent, tax, insurance, mortgage repayments, various subscriptions), but you also have to provide a budget for leisure activities (golf, tennis, boating, etc.) and holidays (long weekends in Europe, holidays in the sun, etc.).
You have to ask yourself if you are prepared to make concessions in the event that your budget is insufficient. Would you be prepared to move in order to reduce your rent expenditure? Or to give up playing golf?
If the image you have of taking early retirement does not include sacrificing certain items on your budget and you are not prepared to make concessions, then you need to get organised now as a result.The 3 pillars of the Swiss pension system effectively offer benefits which are not insignificant when planning for early retirement, and particularly as regards taxation.
Depending on the company you work for, you have the option of benefiting from an AVS bridge pension and thus of taking retirement earlier. However, you have to weigh the pros and cons because the bridge pension allows you to use the age-related credit from the 2nd pillar early, but at the expense of the income received as from the legal age of retirement.If this is not the case in your company, here are the early retirement options based on the different pillars and the main consequences which will result from them:
It is possible to access the income from the 1st pillar (AVS) 2 years before the ordinary retirement age.
GOOD TO KNOW:
- Payment of the 1st pillar begins as from the month after reaching retirement age.
- The income paid depends on the average annual income, the number of years of contributions and any possible subsidies for education and care credits.
- You have full entitlement to the income after 43 years of contributions for women and after 44 years for men.
- Taking early retirement leads to a reduction in the income received:
- - reduction of 6.8% to retire 1 year early
- - reduction of 13.6% to retire 2 years early
- It is possible to continue working after the legal retirement age, but this does not allow you to make up for missing years.
WHAT DO I NEED TO TAKE CARE OF?
Taking early retirement does not necessarily mean you will stop making AVS contributions. Unless you leave Switzerland, you must continue to make these contributions until the ordinary retirement age and you can continue to deduct them from your taxable income.Beware, however, the contributions paid during the period of early retirement are not taken into account for the calculation of income.
It is possible to access the income from the 2nd pillar (LPP) 5 years before the ordinary retirement age, or earlier, in particular in the event that you leave Switzerland.
GOOD TO KNOW:
- Payment of the 2nd pillar begins as of the AVS but may be different from the legally determined age because the conditions of the pension fund may specify a different (lower) retirement age and early retirement before this age.
- The pension contributions are higher during the last 10 years (18% according to the LPP). By taking early retirement, you deprive yourself of the principal years for the development of capital.
- As the AVS bridge pension is financed by the 2nd pillar, the income from the 2nd pillar as from the legal age of retirement is lower.
CAN I REDEEM YEARS FOR THE 2ND PILLAR?
You can carry out redemptions in the pension fund in expectation of your early retirement and thus create more retirement capital. In addition, these redemptions will reduce your taxable income on your tax declaration and you thus benefit from tax savings.
It is possible to access the income from the tied 3rd pillar 5 years before the ordinary retirement age, or earlier in the event that you leave Switzerland.
Subscription to a 3rd pillar allows you to minimise the impact of taking early retirement, set out above, thanks to the establishment of supplementary income and life insurance if the 3rd pillar is accompanied by endowment insurance.
GOOD TO KNOW:
- By subscribing to multiple 3rd pillars, you benefit, on a maximum deductible amount of CHF 6,768.-1, not only from a reduction in your annual tax but also from tax benefits upon maturity. By making staggered withdrawals, you reduce the size of the sums withdrawn, thus reducing the tax which applies at the same time.
The amount that you receive at retirement age could be significantly reduced owing to certain situations:
- long periods of unemployment
- sharing of the assets from the 2nd pillar (LPP) in the event of a divorce
- late start in making contributions to the 2nd pillar (delay in starting professional activity)
or to the 1st pillar (arrival in Switzerland)
- partial use of the capital from the 2nd pillar to purchase a real estate asset
- partial use of the capital from the 2nd pillar to launch a business
Subscription to a 3rd pillar can allow you to supply supplementary retirement capital, to contribute to the realisation of your life projects and to take advantage of tax benefits.
PLANNING YOUR PENSION: the questions to ask
It is essential to take action early enough, be clear about your personal situation and keep yourself informed about the possibilities for action in terms of pensions.
BENEFIT FROM OUR APPROACH
- advice about planning your pension according to your personal situation
- provisional calculation of your retirement income
- solutions for the capital to be established for retirement
- optimisation of your time assets
Call on our services: make an appointment for advice +41 (0)800 829 830