More like retired at 62 and died at 77. But yeah in same lines
My usual hyperbole man!
Not really, as it’s fully funded by design. Defined benefit vs. defined contribution is not generational, it transfers risk from employer to the insured. The main challenge to either is long periods of low interests and returns in general, plus life expectancy. That’s why funds struggle to keep up the required average returns with their asset allocation.
But I’m with you on the holistic approach. It’s easy to single out and criticize individual pillars or regulations, but overall it’s a very balanced system with some benefits for everybody.
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Most importantly, your force or incentivize people to save for retirement.
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Not really. At least it didn’t happen in the last 40 years in the 2nd pillar.
And it didn’t happen in the last 77 years in the 1st pillar - and apparently won’t happen there in the near future either.
Which partly explains the predicament we are in.
The question is why not.
Because large parts of the population has signed up for a relaxed retirement. Even early retirement, they just don’t know it yet.
For the initial question, I try to stick to 30% pension fund, 70% taxable. It becomes somewhat interchangeable once you got access to VB and/or 1e, though.
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Now I wonder if I’m putting too much into the pension fund. At first, I figured:
- Work out how many years you have before retirement and how many after and simply put taxable and pension in proportion to this
- Then I thought: maybe I need more in earlier years when I’m hopefully more active, versus later on in life, where my only expenses are rocking chairs to sit on while I shout at kids on my lawn
- Then I thought: wait, I forgot to count that I have AHV income at retirement age, so that flips it even more to taxable.
- Plus any amount in taxable will carry over into your pension years, so if in doubt, it would be more conservative to keep it tax taxable.
- And then I remembered there are also options to take pillar 3a out 5 years in advance
- And you use some to pay off mortgage
- The last 2 favour paying more into the PF to the extent that you have that flexibility to withdraw again
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Well, if you have a shorter time horizon and can actually invest the full pension in VB as you like, I see no reason to not max out the buy-ins while you still can.
Assuming, of course you still benefit from tax deductions and got enough in taxable or other income to cover your expenses till you can cash it out.
My 30% does not include VB, I got more then 2 decades in front of me, and eventually all buy-in potential is used-up, so it seems to be quite different parameters.
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If I manage to make it to 2028 and follow my current plan, my pension assets pillar2+3a will be about 1.4x my taxable assets with the possibility to drop to 85% with mortgage pay-off.
I guess this can still make sense. Plus I have to factor the real risk that I burn-out/bore-out before then, but I hope to last at least 1 more year.
EDIT: to lock up the additional payments for 10 years (the earliest I would likely be able to withdraw for mortgage purposes), I calculated I would get an additional 5% annual rate of return on the amounts I contribute. So then I need to decide if the lack of flexibility for 10 years is worth it.
Because no big party wants to burn their fingers and lose voters by actively asking to increase retirement age (last time it was a young party).
And when the population has a say through voting, they don’t want to work longer than the people before them..
This may be changing in a few years, when all baby-boomers are retired, so they wouldn’t be affected anymore and can therefore vote for an increase of the retirement age.
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I maxed out my pillar 2a through massive volunteer contribution over the past 5 years. Half my net worth in pillar 2a today. I would do more if I could to reduce taxes, everything taxable above 175k in fact. That money is protected and my pension plan is providing a good return considering that. This strategy is especially favorable close to retirement, reducing risk, tax
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Why not contribute even more than over 175k, unless you are saving it for future years? Even down to 70k-80k can still be a net positive depending on your canton.
I’ve been doing the same and will push my taxable down to around 70k. I wish I’d started sooner as not only would I have been able to spread the benefit and reduce higher marginal tax, I’m running out of time to use up my pension allowance as I want to retire soon but underfunded my pension throughout my working life.
Ideally, I’d have liked to retire this year or next year, but I will instead target 2027 or 2028 to give me time/capacity to fill my pension gap.
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The reason is simply that I knew I would out of room for contribution to my pillar 2a, so then it made sense to optimize for where marginal tax rate starts to decrease - that maximizes taxes saved. That happens to be around 175k
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I’m not sure what you are trying to say, but I guess it is that you only have a ‘small’ amount of voluntary capacity to make and a ‘large’ amount of income/years to offset so it is better to spread the available capacity over the many years/top slice income to get most marginal tax benefit?
I have the opposite problem of: ‘large’ amount of voluntary capacity to use up and not so much income/years to use it up in.
Just make sure your tax savings are well above the lump-sum tax rate for the most likely canton you’ll be living in. (It doesn’t make sense to save just a few percents, I’d target 10-20% savings)
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Indeed what I meant.
Understand your case, but be sure to have enough free (taxable) investment to bridge until you can access the pillar 2a. I only built my 2a once I was FI in taxable assests actually
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My lump sum tax rate will be just under 10%. Technically, if I reduce my income tax to below 40k, I end up paying more tax on the amount below 40k as the marginal tax rate will fall below the lump sum tax I am charged.
However, due to the high wealth tax and AHV due, you get a saving of 8 promille per year or 8% over a decade which helps to cover it.
However, you can end up paying a lot more tax if the pension pot makes large capital gains e.g. if it doubles in value, you will pay double on withdrawal, so effectively 20% tax if calculated on the deposited amount. If it triples then 30% tax etc.
Yes. I guess not just to bridge, but allow for uncertainties, emergencies and maybe pension age being pushed back.
Anyway, I revisited this and decided to do the following:
- Assume that in the first 13 years of retirement, I want to spend 2x the amount than in the next 19 years of retirement
- So I do: 13 x 2/(13 x 2 + 19) = 58%
- So I aim to have 58% of liquid assets at retirement in GIA and 42% in pension fund