Mortgage and Investing

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21

The CHF amount of the total buy in is limited and is calculated using your salary. If I’m not wrong, it’s assuming your current salary also for past years, which then gives you the ability to do buy ins in order to get your pension fund to the amount you would have had, if you always earned as much as you do today. Hope that’s clear :slight_smile:

A capital withdrawal can only be made for own used real estate (main residence) and only every 5 years. You can find more information in DE, FR and IT here: Wohneigentumsförderung mit Mitteln der beruflichen Vorsorge

How did you set your target asset allocation? What where your thougts and considerations and would you mind to share your target asset allocation?

As for the buy ins, wouldn’t it be beneficial to do them later? A rule of thumb is to start when your 50 years old, once your salary probably has peaked and the tax gains are therefore higher. And it’s closer to your retirement, therefore, the lower expected interest as compared to stocks doesn’t weigh that much.

Downside is of course that, in my case, I would have gotten 3% for 2023 on my pension fund whilst the ‘risk free’ return on the savings account was only 1.8%. So the low risk capacity due to the high mortgage hurts a bit.

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It’s more about reducing our obligations and also the refinancing in 5 years.

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few things to be aware of

  • withdrawals for home ownership only allowed once every 5 years
  • Once you make voluntary purchases , full pension capital (including all 2nd pillar, VB , 1E etc) gets locked for 3 years for any withdrawals or else taxes need to be paid back.
  • Any withdrawal is taxed at lump sum rates (I think this part is known but just mentioning for completeness)
  • Maximum voluntary purchases are limited by pension fund plans (different for different companies)
  • Maximum withdrawal is limited by age (also mentioned in the pension fund statement)
  • Any contributions made after withdrawals are made are not tax free unless you refill everything you withdrew

I think for now these are main things.

Although I see that directionally there is an attempt to tax capital withdrawals at higher rates. So in future this might change and hence people need to be cautious.

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24

If you expect a higher tax rate later on, and big returns elsewhere? Yes.

In that same logic, you both would work hard to push your careers and income, instead of working part-time :wink: It’s a FIRE community, maybe 30 is the new 50 or 60 when it comes to retirement planning.

As for me, my salary might have peaked, already. Hard to imagine going back to full-time work. If it didn’t, that’s a financial luxury problem for later.

Also, I’m not comparing buy-ins vs. stock investments, that depends on too many personal factors. My answer was meant an alternative to your planned ammortization. On buy-ins vs. amortization, buy-ins should win clearly if you include all tax effects.

It’s not even mutually exclusive. You could buy-in for some time and eventually withdraw to amortize. Only drawback would be that you need to pay-back first if you want to continue buy-ins afterwards.

I only started thinking about when buying and kids became a topic and eventually a reality. Even now, it’s not a fleshed-out, coherent policy but rather a mix of justifications and rule of thumbs…

A good starting point was a text-book 70:30 split (risky vs. stable), which you can adjust to your personal situation. I look for a mix where I’m all set if the stock market continues to provide excessive returns in the next decade (which would also partly benefit the returns of pension funds). And if it doesn’t, I can still sleep well at night, e.g. if it would drop 5, 10 or 50% next week.

Next step was to determine what to consider risky and safe. My risky part is only stocks for now. For stable, classic gov bonds don’t make sense to me while having a mortgage with a higher rate, but I consider the pension fund to have similar characteristics, at least mid-term.

On top I did some what-if-scenarios on income, interest rates, market returns like Quack to challenge the allocation

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25

Yes, you can make partial withdrawals. Even makes sense to break the progression on the withdrawal tax vs. all at once. Well, not to cover mortgage payments, but to lower them.

It comes down to expected rates and taxes.

You could run a quick calculation based on your mortgage interest and pension return gross, then add income, wealth and withdrawal tax for a net comparison over a 5, 10, 15-year period. Obviously, the longer the time, the lower the annual return of the buy-in gets, but will stay ahead unless the mortgage rate is much higher than the pension fund returns.

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26

This. If you have a good pension fund and a low mortgage interest rate then, it could be a no-brainer e.g. if you have a long term fixed mortgage at <1% and pension funds >1%, then you can simply fund the pension as it will return more and you have all the tax benefits that come with it on top.

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