# AHV - when to take it?

Lets assume you have 100k in yearly expenses and retired at any given time before 63. As your 63th birthday is only a couple of weeks away, you’re currently left with a 2.5 million portfolio. Should you take AHV as early as possible or delay it till 70 to make sure you’re extremely likely to never run out of money? What should be taken into account when running the numbers? Sequence of return risk, longevity risk, opportunity cost, taxes, remaining expected life expectancy, inflation? Did anyone run the numbers?

63: CHF 2’117 x 12 = 25.4k/year
64: CHF 2’283 x 12 = 27.4k/year (+7.8%)
65: CHF 2’450 x 12 = 29.4k/year (+7.3% / +15.7% total)
66: CHF 2’577 x 12 = 30.9k/year (+5.2% / +21.7% total)
67: CHF 2’715 x 12 = 32.6k/year (+5.4% / +28.2% total)
68: CHF 2’869 x 12 = 34.4k/year (+5.7% / +35.5% total)
69: CHF 3’038 x 12 = 36.5k/year (+5.9% / +43.5% total)
70: CHF 3’222 x 12 = 38.7k/year (+6.1% / +52.2% total)

As you can see taking it before 65 has the biggest impact. One could simply argue that taking it at 65 gives you a risk-free and guaranteed 15.7% higher income for the rest of your life. Reducing your yearly portfolio withdraws by 29.4k instead of 25.4k.

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That is an interesting overview, many thanks!

I guess it really depends on two variables

a) How long do you expect to live? If you withdraw later, you have a higher income, but also less years to get it. You have to think about your current health and about the life style that you have lived for the last thirty years or so. You can also pull some statistics about mortability rates, etc.

b) What exactly do you want to maximize?
I. Your personal free time to enjoy and live
II. The wealth that you inherit to your children? And/or do you have a spouse for which you want to make all arrangements in case that you suddenly die?

Having the AHV gives you less stress and more financial freedom to do activies with your families and grand children. Once you have financial freedom and less years to benefit from compounding interest, I could imagine that the means to live a rich live can be much more rewarding than gaining a few percentages more. Nobody knows when you might have a stroke or some other tragedy and then you loose personally and financially you lose all future payments as well.

Have you considered that you also need to pay in as long as you don’t take money out?

Does it also increase if you are already at the max AHV rent?

You still need to pay the AHV contribution till 65, doesn’t matter if you take it early at 63. Otherwise you lose out on 1/44 for any missing year.

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So you’re not paying in anymore after 65 if you no longer work & not access the AHV?

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No.

"Die Beitragspflicht endet, wenn Sie das ordentliche Rentenalter erreicht haben. Für Männer liegt das ordentliche Rentenalater bei 65 Jahren und für Frauen bei 64 Jahren."

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This is an interesting question! Thanks for putting it out there!

Lots of variables, plenty of tax considerations, etc, as you mention. I haven’t punched the numbers - so please expect no useful contribution here - but I wanted to share this anyhow:

As others have mentioned you still pay into the AHV insurance until 65 (64 for women, currently) if you stop working and the amount you (should)* pay depends

• whether you have a spouse and whether they still at least pay twice the minimal AHV contribution (currently about CHF 1k per year)
• on 20 times the yearly pension income you receive

IIUC, assuming that you do not have a spouse who pays at least twice the minmal AHV contribution, this means that for collecting AHV at 63 and 64 you’ll still have to pay into AHV, and the amount is based on

• age 63: CHF ~3000k (CHF 2500k portfolio + 20 times AHV pension of CHF 25.4k)
• age 64: CHF ~3040k (CHF 2500k portfolio + 20 times AHV pension of CHF 27.4k)

The table in the linked guide doesn’t have explicit numbers for this in their Beitragstabelle, but extrapolating from the figure for CHF 1500k (and saucing on some nice progression) you end up paying between 7k and maybe 9k into AHV for those years before turning 65.

Of course any additional pension income from pillar 2 or a bunch of other things affect this calculation as well.

Wow, that was just the part for receiving AHV before the regular pension age.

Whole different set of questions and calculations for waiting until 70 for AHV payout. I’ll have to think about this more thoroughly … seems like the AVH expected per year pension increase is just around my expected per year dividend increase of my portfolios (although the AHV pension increase seems more guaranteed … but OTOH I’ll benefit from additional nest egg capital appreciation … or, ahem, write-down).

If I manage to punch some actual numbers, I’ll post them here. The question is certainly super interesting (probably though only if you’re nearing the decision year :-D).

* Another wrinkle for the entire calculation is of course to forego some percentage of the AHV pension for years not paid in. Does your expected return on contributions missed exceed the one promised by AHV? Wrinkles after wrinkles …

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Of course if you start later your pension is higher, but you receive it for a smaller number of years. It takes 12.7 years of the pension at 65 to reach the same total amount as when starting at 63 (12.7 * 29.4 = 14.7 * 25.4).

The conclusion from this is very personal; I’ll probably favor my early retirement years rather than my future self above 80…

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Delaying AHV doesn‘t change your ability to favor the early years of retirement. Waiting for it till 70 means that your portfolio withdrawals will decrease from 100k to 61k per year (as shown in my 1st post). So you could potentially withdraw 6%/year (150k from a 2.5M portfolio) for 7 years for example. With 0% real return (assuming something rather conservative), your portfolio would decrease down to 1.45M. Now you‘re 70 and go back to the 100k/year you planned on in the beginning. 39k from AHV and 61k/year from portfolio withdrawals that will last till you‘re 94 years old (assuming once again 0% real return over those 24 years). So you could also view the whole delaying as an insurance for 70+ which gives you the opportunity to spend way more till then.

The answer to my question is thus really complex. You really have to run some numbers.

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Correct, and I haven’t done it.
But my intuition tells me that it is better to keep more capital, if you expect that it will have a real return, or if you have heirs

It may also be interesting to consider the stock market conditions. If there is a big market crash shortly before turning 63, it may be beneficial to get AHV early to reduce the amount of stocks you have to sell at a low price (i.e., try to benefit more from the expected market recovery). Or more generally, request AHV at the first significant drawdown of your portfolio, if one occurs between 63 and 70.

I haven’t run any numbers on this, so I don’t know whether this actually makes sense.

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If one reaches the average life expectancy of about 86 years, it should be a zero-sum game. If you die earlier, it is better to draw as early as possible; if you die later, it is advantageous to draw later.

Since I want to protect myself against the risk of living a long time and running out of money, I currently plan to draw AHV as late as possible, at age 70.
If I die earlier, I will leave some money on the table, but that is the price I am willing to pay for this insurance.

A question on the side: How are the AHV years calculated in relation to the amount of the pension, in which one pays only the contributions for the unemployed? is it only the minimum amount or is there a calculation for this?

https://www.ahv-iv.ch/p/2.03.e

Page 6 of the PDF.

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Thanks, but I guess I expressed myself in an unfortunate way.
What I meant was how a year is counted with these contributions, does it count as if you only paid in the minimum amount or can you get to the maximum pension with a high enough contribution as well
e.g. i have paid for 22years with an income of +90k and then pay 22year 4.2k as an unemployed, do i get the full 2450chf/month or an reduced amount?

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i linked a document here (if that’s what you mean)

yes,thats what i looked for
thank you!

from timing the market to timing the death, lookin’ forward to it

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i guess potential changes to your overall asset allocation is another factor. e.g. you go for 70 vs. 65, because you prefer the ‘longevity insurance’ part. otoh you might want to fund the 5 year income gap of ~150k with a fixed income ladder or some other change to your overall mix.

or you could look at it like this: you’re adding risk for the first 5 years, thus reducing the allocation to stocks to some degree during that period. otoh you’re reducing risk for the remaining period, thus adding to the allocation to stocks to some degree afterwards. all compared to what you’d have otherwise allocated at these ages.

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It looks like one of the most important sources was not yet mentioned that helps you check your AHV claim against your past contributions: https://www.acor-avs.ch/requerant