Let’s say you want to retire early (say at 50) in Switzerland with a 6k monthly budget so 72k a year. At, say, 20% tax, you need gross of about 90k. Let’s say you have to pay AHV of 8k, so that is now 98k a year. Let’s say you have wealth taxes of around 14k per year, so that is 112k. If you can drawdown at 4% that means you need a pension pot of 2.8 million.
I edited to make tax rate 20% - the number is still almost 3 million.
It’s a little bit less bad than that, as you probably don’t pay 30% income tax on 120k pre-tax income, and most early retirees would have substantial after-tax investments (on which you don’t pay income tax) when they retire.
But yes, 2 million is the least you’ll need for a simple life in more expensive part of Switzerland.
However, that still beats many other European countries where the needed wealth might be half but after-tax income during accumulation phase is probably a third of what it is in Switzerland, due to lower wages and significantly higher taxes.
I guess those that play the geographical arbitrage game (earn in Switzerland, retire in a cheaper country) have it easiest.
What tax of 30%?
What most people aim for is covering part of their needs with dividends and part of it with selling some of your assets. So your income tax will be nowhere near the 30%.
Besides the already mentioned likely much lower tax rate, also consider that the AHV part flips at 65 or so. Instead of having to pay 8k a year, you should get a pension of up to 29k a year.
Sure you can play with the tax, it is not the most sensitive input. Even with a tax of zero, you still need a pot of over 2 million.
Yes, definitely. We are aiming for 2.5 Mio., considering AHV income of approx. 35k for both of us, it should be a pretty good living standard.
This corresponds to my estimation.
Earn in an expensive county, spend in a cheap one - sure, this is clear. But taxation is also very important in financial questions. Could it be that a favourable taxation regime in Switzerland would beat savings due to lower costs of living in another country?
I have heard about for example Portugal that has a tax regime beneficial for early retirements. This is a direction to dig, I think.
For sure a 10 year tax holiday would help. The difficulty might be if you retire even at 50, it seems quite daunting to move somewhere new and start fresh knowing nobody and not the local language and customs!
AHV and wealth tax are additional cost gotchas in Switzerland. You have to pay wealth tax and so you have to earn more income to pay that, which increases the gross income you need, which increases the pension pot you need, which increases the AHV you need to pay… and so on. There are multiple “grossing-ups” for income tax, AHV and wealth tax and unfortunately, they are not fixed costs but often progressively increasing brakes on either your income or wealth.
I would say you do not need 6k/month to retire at 50. (I am at approx. 4k CHF for two persons right now, probably even less since I am not looking so much into it). The highest threats are higher medical costs with growing age in my opinion, but on the other hand a non corporate life might take a lot of risk out.
It seems also that not needing to work means also less costs, since suddenly
a) you can do the shit yourself and
b) no more expensive suits or other shit only needed for work
BTW , you forget that from 63/65 (not sure which age exactly), you actually get AHV payments.
And FIRE does not mean no income at all. You can do still some gigs to do another 10k/y on the side without too much hassle (and being fun).
Capitalized value of AHV will form part of your wealth. Say you have 20k AHV income at 6%, then that is 333k of wealth you need to accumulate within AHV system.
I estimated costs around 4.5k per month based on current costs and removing costs for kids stuff (assuming they are grown up and are independent). But that doesn’t include any inflation adjustments (e.g. for food and health insurance) and also assumes we live rent free in a paid off house (so add 1M to wealth needed).
Then I get to 1700 assets + 1000 house → 2.7M
Of course, if I retire early while kids are still young, I still have all their costs which is quite substantial.
Of course, we could also downsize to a smaller house when kids are older that could release some equity to reduce the amount needed.
Well 4.5k/month (is it for two persons?) would be 1.35 M with a SWR of 4%, so not sure where you get your 1.7 MCHF.
However, I would argue that this a pretty high lifestyle considering you say rent free.
I am at a much lower amount for 2 persons and do not have the impression I am missing out on something.
This is all about personal choice, so I would change the title into “Do I want a ridiculous amount of money” or instead of need.
FIRE is not only about investment strategy, but also understanding that lifestyle inflation and hedonic adaptation is the actual reason we need to work more and more despite being so much more productive (or said in a different way : “Stop spending on useless shit”).
Are you mixing up AHV and pillar 2 (BVG)? The AHV pension amount is based on your AHV contributions but you don’t accumulate wealth at AHV and there is no BVG-like conversion rate.
Or is this just for calculation purposes to make it easier to account for the AHV income stream? 6% sounds too high for that, in my opinion. With a 4% SWR and the maximum AHV income of CHF 29’200, your AHV would be worth CHF 730k at age of 65. This would have to be discounted for early retirement.
Your numbers seem a bit high to me.
For a single person living in Sion, Valais/Wallis to afford 6K net expenses per month at a 4% SWR:
They need roughly a 2.4M wealth.
That will generate a wealth tax of roughly 15’200.-
That will generate dividends of roughly 48K (at 2%)
That will generate income tax of roughly 5’600.- (11.7% of income (dividends) - that’s without any deduction).
OASI contributions would be roughly 5’800.-
Married couples would have a slightly more favourable treatment (less income tax and slighlty less OASI contributions).
That’s if you expect to contribute to OASI until the end of your life instead of getting a payment once you reach 65. You’d need less in actuality.
The other side of the coin of the wealth tax is that we don’t pay taxes on capital gains.
I also join @Patirou in that 6K net expenses is pretty high for a single person without dependents. I’m in no place to assess it but I’d say it would probably not be as much for a couple.
Edit: Accounting for the minimum OASI distributions, retireing at 50, with 0% returns between age 50 and 65, a single person living in Sion, Valais/Wallis would need roughly 2M to retire. In practice, they may be elligible for more than minimum OASI distributions and have decent chances to get more than 0% real returns on their portfolio from 50 to 65.
If you want to include AHV, I guess there are multiple ways of doing it. Maybe value of your contributions is the simplest as that is effectively what you paid, but I just put a filler number to account for something. I don’t pay too much attention as it is such a small fraction of the required amount.
The numbers were my estimates based on current expenditure and reducing a bit for children costing less. It is therefore for an unmarried couple living in Basel Land (on a single wage).
It is for 2 people. My budget is as follows. Figures are monthly annualized amounts and there might have been a few stray expenses for kids not taken out:
| Expense | Monthly |
|---|---|
| Food shop | 866 |
| Health insurance | 675 |
| Heating Oil | 417 |
| Health insurance | 400 |
| Eigenmietwert | 300 |
| Health insurance | 283 |
| Holidays | 250 |
| Car fuel | 173 |
| Electricity | 150 |
| Trips | 130 |
| Car service | 83 |
| Internet | 80 |
| Birthday/xmas presents | 67 |
| Cable | 56 |
| Dentist | 55 |
| Misc | 50 |
| Insurance GVZ | 50 |
| Water | 50 |
| Sport | 43 |
| Mobile phone | 39 |
| cell phone | 39 |
| Zurich insurance | 35 |
| Billag | 33 |
| Waste | 25 |
| Birthday party | 25 |
| Insurance | 21 |
| Car insurance | 21 |
| Swimming abo | 17 |
| Swimming abo | 17 |
| Museum pass | 17 |
| clothes | 17 |
| photos | 15 |
| legal insurance | 11 |
| Car registration | 8 |
| subscriptions | 8 |
| subscriptions | 8 |
| 4,533 |
I’m not as familiar with tax calculations in Basel Stadt but I would get:
2.3M as a required capital for a married couple to allow for 6K net monthyl expenses.
Implying 46K dividends, imputed 50/50 to each of the partner for tax purposes.
92K gross inflows with a 4% SWR.
~14’500.- of wealth tax (no income tax)
~4’600.- of OASI “premium”
~72’850 disposable income for net expenses (post taxes, post OASI).
That’s for lifelong payments into OASI without ever getting any benefit out of it.
I’m not sure how minimal OASI benefits work for married couples so I’ll work with 150% of the minimal individual benefits (CHF 1’837.5/month = 150% * 1’225.-). Past 65 years of age, the couple would get 22K per year of OASI benefits. Their expenses can be covered with 1.5M of assets at a 4% SWR.
Assuming 0% real returns between years 50 and 65, they’d need 2.13M at age 50 to retire. I would not say it’s that a ridiculous amount of money for a 15 years early retirement granting a 6K real take home income.
Maybe I’m missing something here, but you don’t get to 6k of net expenses in your calcuation.
If I need 6k of expenses net of tax per month (and by tax I mean, income tax, AHV and wealth taxes), that is 72k per year. So the dividends have to be more than that. If tax rate is 20%, then dividends would be: 72k/0.8 = 90k.
Indeed, I’m at 5’783.- I’ve been lazy and skiped the last iteration, I probably should have gone through it.
I’m still at something like 2M-2.2M with OASI roughly taken into account for a retirement at age 50 (with many shortcuts, it’s a back of the napkin calculation). I would say high, but not insanely high.
Edit: the tax rate is not 20%. We have to apply to overall rate which is lower than the marginal one. It’s more in the range of 10%-15% for income (applied only on dividends). 0.4% to 1% for wealth.
Edit 2: with your way of calculating the “taxe rate” (income+wealth+OASI applied to the whole income and not only the dividends), I’m at 27% taxes. It’s kind of sensitive to wealth levels and not very representative to how these rates evolve in reality so I’m not sure I would use it for calculations.