Like with anything, you can be creative about these. If taxes are too high in Geneva, move to Vaud 
if AVS is levied on the wealth when not in employment at all, get some very part time job - sit on a board, perhaps, or help a mate grow his business on an on-and-off (5%, say) basis
Not so easy: if your AHV from employment is less than a fraction of that calculated on wealth basis, you still pay the higher amount.
Tax polynomials:
Note, initially all calculations were done with no inflation and return on assets was calculated as a ‘real’ return and all costs were kept in nominal figures. Therefore all income values fell within the values shown in the pictures here.
I didn’t check if the tax polynomials are still a good fit at the higher income levels. This might need checking and adjusting if a wider range of income is used, but hopefully doesn’t have a conclusion changing impact.
One thing the sheet highlighted to me is the viscious impact of inflation. With a 3% inflation rate, your 6k per month of expenses increases to 21k per month by age 90!
Cool, thanks for putting this together.
As an aside, I used to think that Zurich as a canton (and living in the city as the cherry on top) isn’t the greatest idea from a tax perspective (especially given cantons Schwyz and Zug would be within commuting discance, or, well, once FIREd, no commute necessary anymore) - and please don’t get me wrong: I actually mostly like paying my ZRH taxes given the benefits I personally see (infrastructure that I like and societal fairness) - but reading about the wealth tax you seem to have to pay in BL, I now feel privileged in Zurich.
So thanks for that!
Couple more points, and apologies if they have been discussed before in this thread:
- you seem to have no pillar 2 or pillar 3 assets in your calculation?
- I personally think you’re still too pessimistic to assume an overall “just” 1% return (4% nominal rate of return minus 3% inflation), but I suppose it’s prudent to calculate things with conservative assumptions.
This potential loophole is closed. It was discussed here
Summary: "Anyone who works for less than nine months a year or works less than 50 % of normal working hours is regarded as not being in permanent full-time employment.” [means: Pay AVS based on wealth]
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Yes, wealth tax in Basel is a killer - it’s one of the worst in Switzerland, behind only some of the French speaking cantons. I’m actually thinking whether to re-locate to neighbouring SO which has much lower wealth taxes. The difficulty is whether to really uproot the kids even though they are only 2 and 5 now.
Pillar 2 should more or less offset my mortgage debt. Pillar 3a is a relatively small amount, but true that it will help to tax shelter some assets.
Unfortunately, unlike the UK ISAs, once you have no earned income, you are unable to contribute further to Pillar 3a and so cannot gradually shuffle more from taxable accounts into it over time during retirement.
I just noticed:
I do a quick back of the envelope calculation and get a figure of 2.8 million.
I spend several hours doing a detailed excel model and still get 2.8 million!
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Are you assuming that the 4% return is all taxable income? If so, this doesn’t seem realistic for an average portfolio.
4% total nominal gross return with a 3% inflation is also very pessimistic.
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Yes. I assume all is taxable. You could make an adjustment for this if there’s a significant amount in tax shelters.
Since it took me half an hour to re-locate this, I will post on here:
Don’t forget to increase your property value for the AHV calculation!
Not so much a loophole as being creative about what to do in “retirement” / how to plan your lifestyle.
The AHV/IV 2.03 document, where this quote comes from, also shows that the (active) income required to not be considered, and having to make, non-employed contributions is quite low and if you’ve ever run a firm, it’s trivial to find a way of having “active retirement income” exceed this through the company board positions I mentioned above.
(Did you think I would do this for free?)
I wasn’t referring to tax shelters such as pillars 2 and 3a. I meant that if you have a nominal gross return of 4% in average, typically only about 2% will be from dividends and the other 2% will be from capital gain. Only the 2% dividend income is taxable, which should significantly reduce your income taxes.
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@PhilMongoose , I agree with @jay , I have a similar table/spreadsheet and I use 5% nominal return (in CHF), 2% as taxable income and 3% as capital gain (non-taxed). Then an inflation rate of 2%, except for my Krankenkasse which I separate out as an expense an increase by 3x2%(i.e. 6% KK inflation - basis for this is core infl 1997-2017 0.5%p.a. KK inflation 1997-17 4% p.a.)
The pillar 2 and 3 is separated out from my NW until 65 (no annual taxes, real return 4.5%, tax on withdrawal 7 to 10% though).
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According to your calculation, how much would that (IMO quite pessimistic) figure change, if one retired at 51, 52, 53 etc.?
I think someone said it already, but 1% real return for a typical portfolio is low and has not been seen on an extended period of time in the past. Nominal return would be rather 7-8% so after inflation 4%.
Ah yes, you are absolutely right. I have to check my portfolio to see what the typical split is but it can change as the portfolio evolves. Normally, I like to have growth and low-dividends, but recently, the portfolio evolved to short duration assets and now even half of it is bonds where all the return is income - which is why I had it all as taxable so far.
I will update the inputs to allow a split. Thanks!
Currently, I neutralize the tax by by contributing the income into pension funds.
You can just look the figure given on the rows for each of the ages you are interested in.
The good thing with the sheet is that you can easily play with return assumptions etc. to test different scenarios.
At the moment, this is an all-on-one-sheet. But like you, I think I will do a more detailed expense calculation on a separate sheet and then feed it into the top sheet to get more nuanced expense evolution over time.
I guess you could even apply historical or forecast different inflation rates for each category of expense and income.
My version currently includes property column calculations, but these probably would also benefit from a separate sheet.
Is KK the only expense you calculate a different inflation rate for?
Given where we are in the economic cycle, I don’t think 1% is too conservative. It wouldn’t surprise me if in the next 4 years or so we are 50% down from where we are today.
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