Even if I am FI, I would still work at least some time. Currently, the yearly minimum contribution is 475.– which you reach with an yearly gross income of 4612.-.
If you have a day rate of 900.- that means working 6 days a year and you are covered.
Anyways, let’s do some calculations if you don’t work at all.
Some assumptions:
RE at 45
Nest egg: 1´600´000
With 1.6 M, I would have to pay 3´193 CHF a year. Which for the 20 years until retirement would be 63’860. However, paying this minimum amount entitles you to claim un-cut retirement benefits from 1st pillar. If you take the AHV minimum of 1185.-, then you get 14´220.- a year from first pillar. (It would probably be more, since you have earned more than the minimum amount before you RE, which would bring up your average. But for now let’s assume you just get the bare minimum.
Now 63´830 / 14´220 = 4.5 years. This means, at age 69.5 you are break even.
It’s not quite that simple, “Versicherte, die weniger als 9 Monate und weniger als 50% der üblichen Arbeitszeit erwerbstätig sind, müssen eine Vergleichsrech-
nung vornehmen!” Less than 9 months employed means you count as RE & u are eligible to pay 3193, based on your wealth. Since u worked nine days paying 475 this is deducted from the 3193. This is put simply, the exact calc is a bit more complicated, but the point is the min. amount is not 475 for everyone.
It’s actually a question that’s been on my mind for some time: if I had 1 million CHF or more, where would I pay less taxes: in Poland or in Switzerland? 40’000 CHF annual expenses, either retired, or working only as much as needed to solve the AHV problem.
In Poland there is capital gains tax of 19%. The dividend part is easy to calculate. The tax on sale of ETFs would be more difficult. At the beginning, it would be lower but with the years would get higher and higher and approach 19%. The worst case scenario would be 19% on the whole annual “income”. So at 40’000 CHF income, that’s 7’600 CHF of CGT.
That already seems comparable to the total of Swiss taxes. Then there is the disadvantage of not being able to hold US-based ETFs anymore. Then comes the question of fiscal condition of the economy and perspectives. Polish society is getting old, no babies. Switzerland is still fueled by immigrants.
All in all, I’m strongly considering getting a Swiss nationality as soon as possible to be domiciled here for the rest of my life (I could still spend as much time in Poland as I wanted). Or do you know a better place, with even lower taxes and higher stability and better perspectives?
Dang, you’re right. Although that document from the BDO hints at the fact that if you just keep under the radar, the AHV-office might not control you and you might slip the Vergleichsrechnung.
For my part, I will count it as a 0.2% additional wealth tax in the pre-retirement phase. It is annoying, but not a dealbreaker.
The alternative would be to leave Switzerland and have your AHV cut for every year you are outside of the country. For a 20 year FIRE period, that would be a 45% cut.
Not sure if the saving of 0.2% can be invested to make up for those 45%. Seems like a complicate calculation.
Although I never bought such a certificate, my work environment is such that i am quite familiar with them. Which kind of BRC do you have in mind? on a single stock? on an index? on multiple underlyings?
if it is on an index, i would not expect more than 2-3% of coupon
if it is on a basket of stocks, your final performance is often tied to the worst performer of the basket, not the average, so beware
The bid-ask spread is often high on these products, and the issuers and distributors of such product often have a commission that is included in the price.
For instance, you have a product that is worth 98CHF:
the issuer will take a 1CHF commission
the distributor will take as well 1 or 2 CHF commission
Now the mid price is 101 CHF. Add the bid-ask spread and you get an idea of all the fees middle men are getting.
On the other hand, the coupon received is not considered as taxable income in Switzerland…
What do you want to gain from it? This is mostly a bet against volatility, right? (if the stock goes higher than the coupon or lower than the barrier, you wouldn’t gain much from what I understand).
Why not simply hold the stock (or better an index to be diversified)? Also when comparing with the underlying, afaik they don’t take into account dividends, which can make the comparison biased.
Edit: and it seems a somewhat opposite to a FIRE approach, since it caps your upside, but you still carry unlimited downside risk.
You reached FIRE in terms of cash but how do you fund your actual day-to-day expenses. 2% ETF dividends is one way – but the BRC path seems to be another interesting one (3-5% p.a.; no tax; fairly limited downside – those bluechip stocks would need to drop more than 40% before you would get booked to your trading account vs. getting the 100% cash payback).
And they will during the next bear market, make no mistake about it.
So your upside is capped to 3-4% during good times, you lose 1-2% each time you need to roll your products, and lose 40-50% once every 10 years…
This chart says that none of those 3 stocks lost more than 40 percent but yes there is a risk. On the hand, investing in the current market feels even more risky. So brc make probably sense if you see limited addl upside for the market.
Do you think it’s risky and it might crash? If so BRC makes even less sense since in case of a crash you’ll be impacted as well. (How did those stock behave in 2008?)
Well the certificate would surely tank in a crash — but that wouldn’t matter if you hold it till maturity. Instead you will still get the quarterly bonus payouts.
…within the given horizon looking back 10 years and 1-year rolling periods.
It also says that Roche came awfully close to do.
Taking a quick glance at historic prices shows, how a close a call it was.
Just extend your rolling 1 periods by a couple days, let’s say 370 days (for Roche Holding):
229.50 CHF on 27 feb 2008
131.00 CHF on 2 mar 2009
for a drawdown of approximately 43%.
Granted, with a tenor of just one year for the BRC whose barriers gets fixed just once, initially, you wouldn’t practically be so unlucky to just hit that. But then, such products often do seem to have longer maturities. And on a longer time horizon, market drops of 30+ percent don’t seem uncommon, every 10 years or so.
In the end, for me it (again) boils down to predicting and timing the market.
Which, in this case, to me seems taking a (relatively) high impact but low probability risk.
Bit like Russian roulette.
…unless you actually do hit a barrier event.
Because then you might be hit with a loss, even at maturity.
What are you going to do in that case? Roll over your investment to a similar BRC, with limited upside, thus prolonging the (minimum) amount of time to recoup your initial investment?
Also, while we’re at it: Don’t forget about issuer risk. Sure, “ZKB” might sound very, very good and secure - and by way of state guarantee is.
But… is it, really, for the BRC you linked to above?
What about “ZKB Finance (Guernsey) Ltd.”?
Would that still sound so good and secure… in, imagine, a major market crash?
(I honestly don’t know, have nothing more than a gut feeling, on this)
I assume that some kind of index would be safer (40% drawdown are much rarer) but I can’t find attractive certificates with >40% buffers. A complicated beast
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