I still haven’t started contributing to the 3rd pillar, which feels somewhat unusual around here. The main reason is that I’m still pursuing FIRE, even though it feels harder to achieve than it did a few years ago. Starting a 3rd pillar feels like conceding that goal — after all, it’s designed to be accessed at 60–65, which is the opposite of what I’m aiming for. On top of that, the tax savings on ~1,000 CHF per year don’t feel particularly significant in the grand scheme of things.
I guess it depends a bit on your investment approach. If you invest long term with buy and hold, using world stocks and Swiss stocks, 3a investments in e.g. finpension are not almost on par to brokers such as IB.
If you are doing other types of investments such individual stocks and options, then it might make more sens to keep all your money freely available, since this is not possible in 3a. Still, as already pointed out, tax savings with 3a are still significant.
That it’s working as intended: if you’re Swiss and/or intend to retire/withdraw it in Switzerland it’s very good to have, if you’re neither of the above then it creates potentially sticky situations that don’t outweigh the tax savings. Situations like: what’s the taxation status and details for withdrawing when becoming a resident in another country - being hit by a 40% tax by another country is both emotionally hard and mathematically disadvantageous. I don’t find the “practical” solutions like “eh you can move to [insert country with dangerous insects/politics] for 6 months, then move to [where you want to be] practical. Edit: the topic of withdrawing the third pillar upon FIRE and/or leaving CH has been discussed at length in other threads - each country is different, the unlocking of the 3rd pillar by leaving CH appears to be simple for now, what’s getting tricky is how the other country will see you: become physical resident vs tax resident, windows to do that, how they’ll see the 3rd pillar (ie as a pension or not - makes a big difference) and many other factors that aren’t easy to navigate.
Edit: what was an eye-opener was talking to some immigrants like myself, but who unlike me at the time of signing up are/were pretty financially literate and nobody has a 3a for the reasons above. I fell into the trap of predatory advisors, like many others.
Edit: for regular savers like us here the 7k/year is extremely achievable, for the general population I feel even 3a with insurance or 1%/year in the bank +tax savings on either is better than nothing.
Do you plan to drop dead at 60-65? Or have no spending then? If not, how do you propose to save for the spending of those years and later, which could amount to 30 years or more?
Hopefully I won’t be dead at 65, so I’ll need money then too — fair point.
My thinking is that if I’m FI at 55 without any 3rd pillar and my net worth is sustainable, the situation at 65 should look the same or better.
If someone builds their FI plan around a large 3rd pillar balance then it’s no longer optional of course. In the end it all comes down on what is your NW at what age and how high is your yearly cost of living.
Whether or not to use the pillar 3a comes down to the tax benefits (or their absence). That in turn comes down to your specific situation (place of residence, etc.), and your plans for the future (stay in CH or emigrate, and to which country, etc.). If there isn’t a substantial tax benefit, then there is no real reason to use the pillar 3a.
Are you actually using your marginal tax rate? If it’s that low, the benefits are indeed a bit smaller and the gap to withdrawal tax not that attractive, compared to 30 or 40%. And yet, you’ll also have some smaller ones down the road, for dividends and wealth tax, so it might still be worth it.
If you contribute for 25 years, you might have some 500-700k in there after 30 years. As others said, that money isn’t lost. You’d simply need to plan for it. While your available investments will be lower in that scenario, you could use them up more aggressively until 60-ish.
Say you have reach a total NW of 2 mio (e.g. including 300k in 3a). Say you stop working and start a relatively safe withdrawal approach at a rate of 3%. You can apply that 3% on your total wealth not only the part outside 3a. The 3a will continue to grow. It doesn’t matter if you cannot access it until you are 65 or so, in a continuous withdrawal case.
Also any capital in 3a is protected from wealth tax while its there. Depending where you live and how much capital you have this can be important.
my advice start doing the 3a and keep doing it as long as you generate income through working, when in pension withdraw it and immediately invest it again in global equities (if you plan to maintain a high equity exposure indefinitely).
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