Case study: 36 month sprint to FI (5M CHF goal post)

Our goal is FI in 3 years, we have set 5 M CHF as our target. We wish then to travel for 2-3 years and see what life brings. We are unlikely to remain domiciled in Switzerland forever, although we at least wish to reside here tax-wise during our travel years.

We are both employed. The following numbers are somewhat rounded but within 95%, I guess I could spend an hour or two to get the exact numbers…
Our combined annual pre-tax income from our jobs is 800k CHF (including average bonuses, RSU values, car allocation, all of it) and the take home is net 475k after selling RSUs (So obviously we are not in the best Canton tax-wise, back to this later). On top of the mandatory (+ max elective additional contributions) pillar 2a, we save 355k CHF per year (75% savings rate). Currently we invest as follows: Pillar 3a (13K), additional Pillar 2a buy-back (115k) and the rest in low cost ETFs.

Our expenses are ~ 10K/month.
Rent 4K
Health insurance for family 1K
Food 1K
Travel 2K
Transport, incl public, car insurance, gas, maintenance 0.5K
Cleaning 0.3K
Media 0.1K
Clothing 0.2K
Other: Internet purchases, skiing, sports, gifts, restaurants… 0.5K

No house, no debt. One car that we own.
Net worth: ~3.2M CHF:
Cash: 150K
ETFs: 2.1M
Pillar 2a: 600K
Pillar 3a: 50K
Foreign pension funds: 300K (low cost, tracing index)
RSUs are unvested, so not included into net worth

The plan looks like this assuming 5% annual return from ETFs and 2% from pillar 2a:
End2020: 3.4M (bonuses and RSU already paid out this year)
End 2021: 3.9M
End 2022: 4.5M
Mid 2023: 5.0M (by mid 2023 RSUs and bonus paid for the year)

The plan is to move to Zug in 2022, so that we will be taxable there for 2022/2023 and also for wealth tax and if/when we get pillar 2a out as a lump sum (potentially in 2026/27) upon a move outside CH. In Zug, we get commute longer to work but tax simulations show we can save 10K/month in tax (excluding pension contribution effects for a moment). That saving is not reflected in the above numbers so an upside.

Questions:

  1. Does our budget make sense? It feels like we are spending a fortune. Travel is important and although we could go lower this is probably one of the last things we would reduce…

  2. Does it make sense we invest that much in pillar 2a? We do it because we save on taxes and that our companies give minimum return - it is our safe part of the net worth, for the rest we are all in ETFs and therefore fully exposed to the ups and downs of the stock market…?

  3. in 2021, I plan to add even more in pillar 2a to maximize taxes. But then in 2022/2023 we plan to stop any extra pillar 2a contribution completely because the move to Zug, which lowers the tax benefit of pillar 2a contribution. Instead, we’d save in cash & ETFs. Does this make sense?

  4. Weaknesses in our plan or thinks that could be optimized?

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Those are pretty strong assumptions given the timeline (it might be true on average, no guarantee it’s true in the next 3 years, variance can be huge), you’re aware it could go either way (and are ready to wait longer if necessary)?

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Depending on whether you have dependents, rent seems a bit high. But then while it would make like a 10k difference, it might not make a massive difference to the overall outcome (and maybe you really like your place :slight_smile:)

Sounds about right.

For me to gain confidence in my plans (with slightly lower though somewhat similar numbers compared to yours), I went to an independent financial advisor in order to have a professional look at things (in addition to the great feedback you can get in this forum).

On your numbers / assumptions:

  • 5% ETF return sounds about right in the long term assuming somewhat risky assets; I personally do my long term forward FI calculations with 2% annual return just to be conservative.

  • 2% on 2a might be a little too optimistic IMHO (for the funds still being stuck in your employer’s pension scheme)? This can be addressed once you stop working and you move your 2a funds to a Freizügigkeitsstiftung with better returns, though. That way you’ll also stop financing all the folks who already are pensioners and who currently benefit from the juicy Umwandlungssatz. :slight_smile:

  • IMO it makes sense to pour some excess cash into 2a in order to save taxes. Your tax bracket is similar to mine, and while I totally support paying taxes it hurts to see over 40 Rappen on any additionally earned Franc disappear into taxes.
    You can also calculate the equivalent of return on capital with the taxes saved over the time horizon before you plan to cash out on 2a (or, again, a good independent financial advisor can help you do that).
    One thing to keep in mind is that you probably want to make these 2a buy-ins as long as you’re employed with the high salary (as the ability to do such large buy-ins into the extra mandatory portion of 2a hinges on your currently high salary).

  • I know it sounds a little silly right know, but for your long term expenses planning you might want to take into account inflation to plan things out a few decades into the future. With your given goal of 5M in assets and 120k in yearly expenses it sounds like you’re on the safe side, though.

Thanks all for the input. Our pillar 2a has minimum 1% and a historic 2.5%, why I use 2%. It does not make a big difference in the next 3 years anyhow, while yes, the 5% on ETFs does. So that could throw the target off.

Your_Full_Name, on adding to pillar 2a, plan is to stop doing this when we’d move to Zug as the retun on that contribution (tax savings) then get much smaller. Does this make sense to you?

And agree, we will engage an independent financial advisor also in 1-2 years.

Our pillar 2a has minimum 1% and a historic 2.5%, why I use 2%. It does not make a big difference in the next 3 years anyhow, while yes, the 5% on ETFs does. So that could throw the target off.

Ah, lucky you. Mine for example gave 1% on the mandatory portion in 2018 and 0.25% (sic!) on the extra mandatory portion (though admittedly this got better in 2019 and this year).

Your_Full_Name, on adding to pillar 2a, plan is to stop doing this when we’d move to Zug as the retun on that contribution (tax savings) then get much smaller. Does this make sense to you?

Probably? It might still make sense to pour some excess cash into 2a, but you’d have to run the exact calculations for Zug tax savings rates and the expected time horizon before you withdraw the 2a. I can only do handwaving in this space, the advisor will calculate it accurately down to the Franc to help make you a decision.

I’m in high tax Zurich and it almost always makes sense to do buy-ins. :slight_smile:

Both finalcountdown and Your_Full_Name - amazing numbers you are on! Congratulations :). Can you please at least give us a hint in which domain such salaries are possible? Are you entrepreneurs?

Dual earners in IT with some experience would do it when looking at total comp (I have similar numbers divided by two).

I have nothing to add, but I would suggest that a family earning 800k CHF/year is probably well above the financial-adviser-vs.-strangers-in-a-forum threshold for financial advice.

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I work for a small US start-up that runs a search engine and participates in an ads cartel. ;-). It’s good money but fun’s run out.

(My wife works for a non-profit.)

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2X Pharma.

chca, I have paid dearly for financial advice in the past. Not because of the fees but because they simply have had difficult time understanding FIRE/non conventional choices, have vested interests (incl raking up max fees) etc. Yes, on specific questions advisors are great but to build and test hypotheses insights and challenges from like-minded is imho very valuable. And, it is not so much about the actual numbers than the logic.

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I am now officially depressed.

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Sorry if I contributed to this.

Edit: this is towards ma0’s feeling depressed comment.

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and if/when we get pillar 2a out as a lump sum (potentially in 2026/27) upon a move outside CH.

Actually, one more thing to consider, though not sure how it applies to you: when you move your 2a money to a Freizügigkeitskonto, you should consider splitting it into two buckets if there’s a chance that you’ll cash out while still taxable in .ch. That way, your tax bracket for pay-out will be lower twice instead of cashing out once.

(Possibly, this even applies if you’re taxed in your next country.)

24k a year on travel is hefty. You don’t want to reduce, but maybe a different type of travel may be an idea?
Around 1-2 years before ER (with a plan to travel full-time for ~3 years during ER), I would consider reducing my travels or at least focus on travels to the immediate vicinity (3-5h by car, long weekends in CH, week in Tuscany, visit 2nd tier cities instead of the big names etc.). There’s so much to discover “nearby”, which is all too often ignored. (One travels to NZ to see a glacier, but there’s one around the corner, Lyon and Strassbourg instead of Paris, etc). That could reduce costs, although if you spend 2x2nights in a Swiss hotel per month, that can easily also come to 2k incl. meals and outings.

I can’t quite grasp how one would be able to work such high paying jobs and still have enough weekends and vacation to spend 24’000CHF.

Good point. And yes, (ski/spa) weekends in CH run up, as do the 3 day fly-away weekends and then add 2 big trips per year… I havent actually really tracked it closely lately, wonder if we are overstating this (but then spending more elsewhere, 10 k spending is a fact…)

Trotro, very low correlation between salary and work hours/weekend work. Looking back, 100k space was absolutely the worst.

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Interesting, I never thought of that.
I only noticed that most people I know in the 100-200k range seem all-consumed by work.

Is this because being paid a lot and being able to decide on your working hours both correlate with having high bargaining power?

[And sorry for the unhelpful off-topic remarks.]

In Switzerland, 400k is quite high for IT. I don’t know what you qualify by some experiences and if you are speaking about a specific IT domain.

I have checked some stats regarding wage distribution: 400k would be in the top 0.5% to 1%

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