Hi @FIRE4Messi,
I read your post with interest and wanted to offer some thoughts. It sounds like you’re doing a great job optimizing your finances, especially by living in a low-tax location.
1. Second Pillar Buy-in
While maximizing your second pillar contributions seems like a good idea, it might not be the most tax-efficient strategy in your case. Your high income likely puts you in a high tax bracket, but that decreases quickly as your taxable income goes down.
Here’s a quick calculation based on your provided information and some inferred assumptions (tax year 2024, married, no children, no church, low-tax location, taxable wealth 1.7M, taxable income 500k):
- No 2nd pillar contribution: Taxable income 500k, total taxes 89,988 (18%), marginal tax rate 28%
- 100k 2nd pillar buy-in: Taxable income 400k, total taxes 67,413, tax saved 22,575 (22.6% of the 100k CHF)
As you can see, the tax savings decrease as your income decreases. You might find a “sweet spot” where a smaller buy-in still gives you a good tax advantage (around 25-28%). Perhaps consider a 30k buy-in this year and allocate the rest towards your property down payment.
2. Renovation Costs
The 1% rule for renovations might not be accurate in your situation. Low-tax locations often have inflated property prices due to tax advantages, not necessarily higher building costs. A 2.5M flat in your area might not be comparable in size or luxury to a 2.5M property elsewhere.
One approach is to compare your desired property to similar ones in nearby, non-tax-haven locations and base the 1% rule on their values. This could give you a more realistic renovation budget.
3. Buying vs. Renting
Ultimately, buying a property is a personal decision. While financial considerations are important, they shouldn’t be the only factor.
The “rent vs. buy” calculation depends heavily on unpredictable factors like future stock market and real estate performance. If you believe Swiss real estate will continue to appreciate or that stocks will significantly decline, buying might be favorable.
However, if you value flexibility, are unsure about long-term market trends, or simply prefer renting, that’s perfectly valid too. Consider your lifestyle, preferences, and long-term goals when making this decision.
I hope this helps! Best of luck with your FIRE journey.