From old of mistakes to FIRE?

I gave a lot of thoughts to this, this weekend. I have always been interested by minimalism, not in the “artsy”/hipstery sense of the term. Just… to be content with simple things. After having a good look at my possessions, I can confidently say that I probably only regularly use only 10% of all that I own. This goes for about everything I have, from clothes to kitchen apparatus (I love to cook) to DVDs/CDs to… you get the idea.

This reminded of MMM’s “King for Just One Day” article about the importance of having the experience over the possession. This also reminded me of a quote by Felix Dennis: “If it flies, floats or fornicates, always rent it - it’s cheaper in the long run.” It’s crude, but the essence of this rings true. (I don’t agree with the “fornicates” part, but hey. To each its own opinion.)

I don’t want to become a cheapskate person, nor do I want to deprive myself from happiness, but I think that part of the journey to FIRE is also, for me, to change my mindset about what brings me lasting happiness, instead of the thrill of something new. I.e., that I shouldn’t buy stuff if I’m not going to actively use it in my daily life nor if it’s not going to contribute to my happiness on the long run.

So yeah, lots of stuff to sell in the coming weeks. It’s going to be fun.

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Wow, @Josh, you’re in for quite a transformation! I’m excited to follow your progress, keep us updated!

I have to say I’m surprised to hear that your apartment and car are “only” 30% of your income and yet you’re living paycheck to paycheck. You must have a ton of camera gear!

@Alex, you are correct. There was a lot of frivolous expenses. This brings me to a small update:

1) Expenses review

After cutting a lot of expenses already, I looked for other ways to reduce the remaining ones. The biggest win in this category was lunches during the week. I like to cook but am quite lazy when it comes to cooking for myself. I forced myself to do so and this marks the first week in which I haven’t had to go out for lunch at work nor buy pre-cooked meals. This (used to) mean CHF 15-30.-/day.

Actually, by using what I already had stored in my kitchen and only buying what I needed, this week’s groceries amount to… CHF 30. I know it won’t always be like this once the cupboards are a bit more empty, this is what I would normally pay for 1 to 2 meals tops, and I have used this for 21 meals this week. Being vegetarian helps of course, and having a good stock of legumes, rice and pasta has helped a lot.

2) Budgetting

I know, I know, YNAB. I thought this was bulls****. It was not. Long story short: living paycheck to paycheck, I always had this small bit of anxiety in the back of my mind about being able to pay all my bills on time and of not knowing exactly where I was standing. I don’t have this anxiety anymore. I now have a clear idea of where I stand and where I will be standing in the coming months. It’s liberating.

This also contributed to make me realize where I could easily cut other expenses (cf. point 1).

3) Pillar 2 optimization

I’m in a position where I can actually move the Pillar 2 pension at the companies for whom I work. I am therefore actively looking into a better pension plan than the one we have that has (always) been giving only the minimum interests to their members, so 1% since 2017. This will of course benefit me, but also all the employees, which is a nice bonus.

I wish there was an equivalent to VIAC for Pillar 2! The clostest I have found that gives acceptable, or at least higher than minimal, returns is “Fondation BCV 2ème Pillier”. Last year, their interest for members was 2.75%, while their result on the market was 7.68%. The difference between paid interests and their result seems to have gone into coverage reserves and management fees. This seems to be somewhat on par with what I have seen so far.

If any of you have recommendations for a good Pillar 2 pension plan, I’m all ears!

4) Vested Pillar 2 transfer

As the current Pension plan I’m affiliated with is so bad, and as I had a lot of “surobligatory” saving, I had (without my understanding at the time) a good chunk of my previous Pillar 2 put into a Pillar 2 Vested Benefits Account at the same pension, giving… no interest at all. I discovered this while looking into every aspect of my finances.

Yesterday, I have sent them the required paperwork to transfer this sum to a Postfinance Vested benefits account that I plan to put in their PostFinance Pension 45 fund (which is the maximum they’ll allow for Pillar 2, otherwise I would have gone with Pension 75).

Normally, you can’t transfer such accounts unless some specific conditions are met, most notably changing job or early withdrawal, but there is an exception to the law that allows you to move your vested benefits pillar 2 to another institution/pension/bank if you so desire and IF and only IF you don’t have a lack of coverage in your Pillar 2.

It’s not giving amazing returns (well, actually not at all this year so far), but will still be a lot better than 0% or even 1% in the long run. Furthermore, the big advantage is that this account counts toward the required assets under management to qualify for a free account. This way, I won’t have to keep CHF 7’500 laying around in a 0% account nor have to settle for their crappy funds with money I could otherwise invest elsewhere. Between this and the “emergency fund”, I will even reach the CHF 25’000 needed for the “Private Plus” account offering free worldwide ATM withdrawal, so why not.

If you have vested Pillar 2 accounts from previous jobs laying around, have a look at your options, it could be interesting to move them somewhere else. If you have lost track of those accounts, the 2nd Pillar Central Office can help you track them down.

So there you have it. I have been busy reviewing everything I could about my finances. It’s a thrilling process, actually, as there is so much to learn. I’m banging my head on the wall seeing how clueless I was and actually how easy it would have been to learn it all 10 years ago.

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So VIAC are currently working on offering a pillar 2 plan!
Have look here, VIAC mentioned it.

However we have no idea how far this is out… could be a couple of years

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Congratulations!

Here is something about Pillar 2. It’s an article from Sonntagszeitung. Ofc. it puts Allianz on top :slight_smile:

I think it will only applies to vested benefits, not company-wide plans, but I will get in touch with them nonetheless. Thank you for bringing this to my attention!

i am also considering. until there is something like VIAC for 2nd pillar, i thought about simply putting the money into a swisscanto 45% stocks fund, the highest stock fraction you can get currently, and with non of that “5%-goes-to-the-reserve-fund-and-current-retirees” - bullshit. however this is for private persons, and i am not shure if you referred to change your company’s plan, where this does not work, it must be a pension fund, not a 2nd pillar investment fund.

Indeed. Company plan. I have received an answer from VIAC, they target their offering for Q1 2019, but it will only apply to vested benefits, not to company plans.

What does it mean? Can you give me an example?

I only know vested benefits in the form of company shares that are paid out on top of your salary and which you are not allowed to sell for example for 5 years. What does it have to do with the 2nd pillar?

I know that my boss has to pay some minimum to BVG, and then there is the voluntary part. He can put more, and it’s more tax efficient than paying it out as bonus. Is the new solution by VIAC going to apply in this scenario?

@Bojack, I should have been more specific. “Vested benefits”, in relation to Pillar 2, is a lousy translation. It’s actually “Freizügigkeitskonto 2. Säule” in German and “Compte de libre passage 2e pilier” in French. It’s one of those unnecessarily and overly complicated thing about our retirement system. It has nothing to do with company stocks.

You can use one of those special accounts in two scenarios:

  1. When you leave your emloyer without having another one lined up;
  2. When a new employer’s pension plan isn’t as good as the previous one and you have “too much” Pillar 2 for them to handle it.

My situation is the second.

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What do you mean “too much” pillar 2 to handle? As in amount of assets?

So I have a pretty good 2nd pillar right now. When I switch jobs the new one probably will be worse. How do I go about using this Freizügigkeitskonto? Speak to new HR?

There is obligatory contribution, and surobligatory ones, meaning above what is required by law. Depending on your company’s pension fund policy, if their plan plans for a coverage/contribution lower than your previous job, the new pension fund might put part of your transfer into one of those vested benefits accounts in the same institution.

HR might not have all answers, but it’s worth a shot. Upon the start of your new job, you will be asked to transfer your Pillar 2 from your old pension fund to the new one. You should ask for information about the pension coverage before doing so. If all else fails, just wait until they send you the Pillar 2 paperwork and see if everything was taken into the policy, and if not, do the transfer of the vested benefits then.

In any case, asking about Pillar 2 pension, while not the primary concern when changing job, should be a question asked before signing a new contract.

woho!! fingers crossed

2nd Pilar is not only there in order to cover (part of) your pension. It also covers substantial risks.
So also this parameter should be taken into account when moving. (Though I believe that you have already digged into it)

amazing!

Regarding vested pillar 2 some interesting facts I learned yesterday:

  • There is a tax advantage of having more than one accounts (in the form of vested pillars). You can pay them out in different years and save taxes.
  • If you need to put your money to a “vested pillar 2” you must not put it into one. You can define two different accounts and split it 50/50.
  • If you move outside of Switzerland but still inside the EU by the time you can and want to withdraw the money you have to pay taxes (Quellensteuer) on the money depending on the place where the vested pillar provider is located.

This is all very intersting to me. I must admit I have not given the second pillar much thought. So it looks like I dont have a “vested” part of second pillar. Is this something you only have when you earn more than 84’600 per year?

2nd pillar is actually an investment bucket where you usually can’t decide much. You have to take the one your Employer gives you. You have the coverage and plan your employer decided and pay as much your employer decided.

In terms of options there is a basic 2nd pillar level that is defined by law and every employer has to offer. But every employer is allowed to offer more than the basics. Here there are big differences and the second pillar coverage should be something to be taken into account before deciding for a new job.

The second pillar is (like the 3a) money you can’t withdraw without meeting some special conditions:

  1. Retirement
  2. Building / buying a house to live in (Within CH or near the border)
  3. Becoming self-employed
  4. Moving outside the EU/EFTA

A vested 2nd pillar occurs when you have money in the second pillar but you can’t hold it in the second pillar your employer offers. This can happen when:

  1. You don’t have an employer anymore (and you can’t or don’t want to withdraw the money). This can happen in a number of ways. Example: You change your job but take 2 months’ vacation in-between. Your old employer must transfer your money somewhere. You don’t have a new employer. So the money is transferred to a vested 2nd pillar of your choice. (After you go to the new employer you should move the money to his 2nd pillar but nobody tracks that. So you could “forget” to move the money after two months to the new employers 2nd pillar. This does happen a lot.)
  2. The second possibility for a vested 2nd pillar is if the second pillar of your new employer should be smaller than the money you bring from your old employer with you. Generally this can happen either when you move from a very generous 2nd pillar to one that offers only the basics or (more seldom) if on your new job you earn a lot less than in your old one (so the corresponding second pillar should be much lower than the one you had). Then your new second pillar can’t “hold” all the money you are bringing with you and some of it has to go to a vested 2nd pillar.

The decisions you generally can make in your second pillar are:

  1. To add money into it. See here
  2. To remove money if you meet one of the precondition mentioned above
  3. Depending on your concrete second pillar you could:
    a) have some flexibility about when and with how much money to retire
    b) decide who gets the money in cases where you are not married and have a partner

If I understand it correctly @josh is in a quite special position where (a) he has some vested 2nd pillar and (b) can decide which 2nd pillar his employer will choose. This is for most people (especially the second one) quite seldom.

What is interesting as a thought for me is to include the 2nd pillar in your investment strategy. Generally your second pillar is not, ore very little exposed to stock markets (mostly because of the legal framework behind it). If you take this into account you could be exposed with the rest of your portfolio.

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I was wandering for a while if I should start to have a detailed budget… You motivated me to download the app today.

Let’s see if I will have the same experience with you. If so I will owe you a big thanks :wink:

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I see the point that the 2nd pillar is not optimized in terms of future returns, I agree 2nd pillar gives you shitty future returns… The system is not sane on the long term and looking for alternatives seems legit :slight_smile:

However, if you are planning to take some money out of your 2nd pillar in a “freizügigkonto/ compte de libre passage”, I urge you to consider the impact of an accident resulting in a disability on your financial situation, especially if you have a family relying on you. I know that some employers include a part of disability/death insurance in the 2nd contributions, and you might want to get an insurance against these risks.

Since you are young, your stash might not be sufficient to cover several decades of disability… I know that mustachians do not like insurances but I do believe that you should insure against risks that you cannot afford.

Cheers,

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That is a very valid point. However, as this is already a vested benefits account, I will optimize it as much as possible until such time that it needs to be reincorporated inside the main pension plan. As explained, my previous employer had a VERY generous Pillar 2 plan, and because of that, there’s about one year worth of it simply sleeping in a 0% interests vested benefits account.

As switching Pillar 2 pension for a whole company is not something to do lightly, I reckon I have about 6-12 months before such time as I would be able to reincorporate this money into the (new) pension plan.

Hi @a2ithaka - we don’t use YNAB but a free alternative with, however, less features (Everydollar), and it was eye-opening in many, many, many ways. I cannot recommend it enough, choose any budgeting app you want but choose one, and give it 6-12 months. I would be massively surprised if it didn’t make a huge difference.

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