I read your blog post on the subject and have come to a different conclusion.
As you state, one of the conditions is:
your OASI contributions paid on that income (employee + employer share) need to reach at least half of what you’d pay as a non-active person, otherwise OASI still bills you as someone without gainful employment, no matter how much time it takes (art. 28bis OASI regulation)
If you are FI, I assume your wealth is going to be 2MCHF upwards. In that case having minimal employment and hence contribution as you recommend will not fulfill the a/m requirement.
In my case, I have calculated I need a 30 Kchf annual gross income or I will be required to contribute (a lot more) based on wealth.
Not sure which blog post you are referring to, but if with ‘minimal employment’ you mean a) <50% employment or b) <9 months employment per year then the article you quoted applies. (for reference, links to the article and more detail incl. the definition of not fully employed here, in german)
So in your example I assume that you earn the 30k in a employment at less than 50%. In my understanding, the calculation goes as follows. You & employer will pay 30’000 * 10.6% = 3’180 CHF OASI contribution. On the other hand you have 2M in assets, which would result in 4’399 CHF OASI contribution. This is less than double, therefore you don’t pay any extra. If the above is correct, you would be fine with an income of 21k CHF.
Note 1): You can have some of the wealth in vested benefit accounts (2nd / 3rd pillar) and therefore exclude them from this calculation.
Note 2): While dividends are taxed as income, they get excluded from the above calculation.
the blog post recommends minimal employment after FI so that you only pay the minimum 500+ chf / year in Avs contribution. Yet if you do so, you will most likely be paying less than half of what you would be paying based on wealth. Unless of course your wealth is rather limited, in which case I doubt you could be FI in the first place.
Conclusion: in order to be FI and avoid paying AVS contributions based on wealth, you have to earn a lot more than 10kchf / year, more likely somewhere around or above 30 kchf.
What sense does it make to FIRE and then keep working to avoid paying AHV ?
I think FIRE goal is to stop working. Jobs paying low income can be quite hard work too.
Maybe people should think about it differently. What’s the annual AHV contribution based on wealth and how much extra AHV will they earn post retirement (for rest of their life) because of this extra contribution during FIRE period . Most likely returns could be interesting
Agree. Trading time for low paying work is the worst trade-off, IMO. Better to work out how much AHV you need to pay and work extra months prior to FIRE to cover it.
I mean, there are other benefits from working than just the money.
Personally, I’m merely striving to become financially independent, not necessarily retire early.
Depends. If they’d thought about it for a bit, many people would (IMO) be able to come up with jobs that they’d like doing despite low pay.
This is indeed the point I am trying to make: avoiding AVS contributions is not a matter of finding some small income source. You have to put in quite a bit of work. So either you are prepared to earn 30 kchf/ year or you prefer full FI and accept to pay AVS based on your wealth, or you accept a reduced AVS upon reaching 65.
In other words, there is no such thing as a free lunch .
Personally I rather enjoy consulting but once I have reached FI I am not prepared to stress myself out to reach the level just to avoid these contributions.
I’m sorry for the low quality contribution, but worrying about AHV contributions when FI is a good sign you’re almost there.
From my POV - if you can’t FI with 2M, then the problem is not on the money side, but on the lifestyle side. I come from a working class family and the idea of even getting 60K CHF for not lifting a finger (except for the sell order and subsequent wire transfer) is absolutely mind blowing.
I respectfully disagree. I came from a low income family as well and would not want to expose my own kids to that level of stress. Therefore, I’m aiming for a not overly aggressive withdrawal rate, and the lower the rates, the more wealth taxes start to matter. E.g., if you shoot for a 3% rate, slapping 0.3% income tax, 0.5% regular wealth tax and 0.2% AHV wealth tax on top, means someone has to now work 50% longer to cover taxes, a fifth of which for AHV.
On lifestyle- my kids turned 18 and have started uni. The hike in medical insurance premiums alone is impressive , add transport, student fees (albeit low) and other living expenses and my forecast expenses go up by 20 % for the coming 5-6 years or more. Goodbye the 60 KCHF budget…
So yes, as far as I am concerned AVS contributions matter. Specially when you have been prudent in your target NW and withdrawal rates, I fully agree.
What makes a difference is how much of that wealth is still in a 2nd pillar vested benefits account. I understand this is not counted in the AVS calculation. Another reason not to take it out until you turn 65.
My own situation is a little different: my wife’s contributions cover the AHV requirement for me while I will not be working, so I don’t face the same extra cost.
But I recognise the bigger question. I’m leaving work and expect to stay in Switzerland for a few more years before deciding whether and where to move abroad. Leaving work and leaving Switzerland don’t have to happen together.
I’d consider some work if I enjoyed it. Taking a job mainly to reduce contributions would be a harder sell for me — the free time is part of what I’ve been saving for. Of course, that’s easier to say when I’m not facing that bill myself.
Yeah, this doesn’t make much sense to me at all - the contributions aren’t really that big of a problem in the grand scheme of taxation (and they also reduce your other taxable income afaik), well unless you’re aiming for very low withdrawal rates - which then however makes me question, why you’re invested in 100% stocks anyway if you’re this risk averse, but different topic. (I personally don’t understand the absolute risk aversion people have in this regard, humans don’t operate this way - you’ll make due with what you have and if you have less, you’ll make due with a bit less - Every 0.1% extra security beyond like 80% or 90% costs you exponentially more in very valuable life time in your best years imho - and what for? If you run out of money, you’ll just get AHV and EL and you’re done, that is if you don’t end up in the much more likely case of dying richer than you lived).
Working a job to pay AHV is a much worse position to be in than to work 1 more year and just pay the AHV contributions from there on. (Unless the job is something you wanted to do anyway)
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- Every 0.1% extra security beyond like 80% or 90% costs you exponentially more in very valuable life time in your best years imho - and what for? If you run out of money, you’ll just get AHV and EL and you’re done, that is if you don’t end up in the much more likely case of dying richer than you lived).