When calculating your net worth, do you include your pension fund and your 3a?
I tend rather not to, as it’s money not readily available to me.
Who you calculating it for?
For world statistics - yes, include.
For your own purposes - do what you want.
For your own purposes to calculate retirement wealth over time - I would say yes, these funds are part of your Vermögen/wealth.
Yes, because it is indeed part of your net worth, and will be yours to use at some point or another.
With 3a you even have somewhat of control what will happen with it, i.e. choose how to invest it.
2nd pillar I regard as “bonds-like”.
I had the same questions so I created 2 lines in my net worth document (Mr. RIP’s) : one including bonds, and one excluding bonds
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Also in team yes, as it’s the only way to have a proper asset allocation.
In fact I track various net worth figures, the total includes not only the pension fund/2nd pillar and saving in pillar 3a, but also value of accrued AHV/1st pillar. Even though getting something out of the 1st pillar is years away for me, there are possibilities to get the money earlier, and ultimately the CHF 28’000 per year is not to be discarded. Pillars 2 and 3 offer various possibility to get to the money early.
For 2nd and 3rd pillar valuation is straight-forward, for 1st pillar is obviously becomes a bit more complicated.
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For net worth I include both (adjusted by estimated tax deduction), for SWR calculation I include 3a fully (minus tax) but 2nd pillar only partially (minus tax and minus an estimate on political etc risk impact).
For asset allocation I include 3a but don’t include 2nd pillar, as I have no control over it, cannot easily see whats inside and, most importantly, cannot use it for rebalancing.
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Well does it really matter whats inside? 2nd pillar acts like a bond.
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Agreed. You get a letter every year from your 2nd pillar provider, with the current balance. And it’s not supposed to drop. I track it in beancount like a regular money account and I book the growth from my contributions + interest.
The problem is, how should I book it when I reach the retirement age and decide to get a monthly pension instead of a lump sum (we might be even forced to in 20-30 years)? Then the account disappears and instead I get some infinite bond with a monthly coupon. Normally, such a bond would have its value tracked on the market, but in this case it largely depends on my life expectancy.
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If you choose to retire early (earlier than 60), you will be forced to take the lump sum. Freizügigkeitskontos don’t pay any pensions
Even if you stay employed and with your pension fund, there’s uncertainty about what the conversion rate of capital to pension will be in the future. Currently it’s about 5-6%, but there’s absolutely no guarantee it will stay the same. If current low interest rate environment will persist for many years, pension funds will likely be struggling to meet their obligations and the legislator will likely lower the conversion rate.
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Well subtract your expenses by the pension and completely ignore it in your asset allocation. That would make sense for me.
5-6% sounds great to be honest, compared to the 4% safe withdrawal.
As a monthly income - no different than you’d recognize your current income from employment, is it?
These are not really comparable. 4% is supposed to be indefinitely sustainable. 5-6% is not - they can just pay you your own capital for ~20 years. If it runs out and you still live, your pension is basically insured by the remaining assets in the pension fund and current contributors. The flipside is, if you die too early (without leaving spouse and underage kids who’d be entitled to your pension), your remaining assets would stay in the pension fund for the benefit of members who outlive you, instead of going to your heirs.
And as I mentioned above, it’s far from certain that the conversion rate will remain at the current levels in the future.
You see, the problem is: when I track 2nd pillar and include it in my net worth, then at the age of 60 I can have a balance of e.g. 500’000 CHF. Then if I decide I want the monthly “pension” and this money disappears, then I have suddenly become 500’000 poorer. I think accounting doesn’t like such violent transitions. It looks as if my house burnt down or my ferrari was stolen. And I feel this doesn’t reflect reality correctly.
What truly happens is that I convert my 2nd pillar capital into a monthly payment until I die. It’s not like salary, because I don’t have to work, I just have to live to get it. If I could sell this right to someone, I would get paid a large sum for it. If I sold my job to someone, he would probably get fired after a month. Do you see my point?
Well, provided that the rules stay the same. If they introduce a law that says that at the age of 60 you’re only allowed to withdraw 50% of your capital as lump sum, then would it make sense if they left the gate open to withdraw 100% when you’re 59?
A bit tangentionally, but still to the point:
2nd pillar is linked to employment. When somebody quits his job, his money leaves the PK of his employer, too. It is fundamentally difficult to do this without a lump sum.
60 is the cut-off date for early / partial retirement.
Good to know that we will always have the possibility to retire before 60 and pay out all. I guess in most cases we should take this option and invest in VT, rather than taking the monthly payments, right? Unless you expect to live to a 100, but even then I suppose you would still achieve better returns with VT.
If you are married your wife has a pretty decent chance of surpassing 90. So a pension could be the better choice. And you get 5-6% instead of the 4% you would withdraw. But it’s not adjusted to inflation…
Hmm, might have to run the numbers.
Why would it not reflect reality? You basically sell it (or „invest“, if you like) to receive annuity payments - and very substantial ones. It‘s quite like the valuation of a company, equity, an investment or bond - though of course you‘d have to make an (uncertain) assumption regarding your life expectancy.
So? …again, the same thing, basically!?
Your capability to earn money from employment (and how long and how much) is subject to a certain uncertainty as well.
I don’t, because a bread might cost 30 CHF when I have access to the 2nd or 3rd pillar.
More precisely, I’d adjust the sum to the money supply and price inflation since 2008 (where they began to diverge significantly).