Retirement plan including AHV and pension fund

[Cortana]

Lets say you work from age 20-50 in Switzerland and retire then. I’m expecting to have around 200-250k in my pension fund and to get a AHV rent of around 1600 CHF per month when I’m 65 years old (Skala30). Lets say you had 2 millon by then invested in ETFs. How would you proceed?

Could you withdraw more than 3.5/4% per year because after 15 years you would get the AHV? What to do with the pension fund money? Keep it invested till 60 with something like VIAC and then transfer it to your regular investments? How would you setup your portfolio?

[nugget]

i cant give an answer to the big picture here, but for sure I will at some point make the calculation including AHV and BVG stash. AHV simply reduces my yearly need for income, thus lowering my finaly stash size. your 1600 CHF/month would translate to almost half a million (CHF 480’000, considerign the 4%-rule) that I have to stash up less.

Pension money would for sure get cashed out and added to my default investment plan.

[bamboo]

I do not understand where you get the numbers of your model from.
How can you expect to obtain CHF 1600 from the AHV if you work only up to 50? I would expect less in this case.
How can you expect CHF 250k in your pension fund? I would expect that anyone with a decent salary should have more than that at 50.

[Cortana]

AHV Skala 30: https://sozialversicherungen.admin.ch/de/d/6850/download (for working from 20-50, I had part time jobs since I was 16). If avg. salary was 85’320 CHF (or more) then you will get 1’616 CHF per month when you turn 65. That’s having 500k CHF more like @nugget said.

Regarding pension fund: I have the option to reduce my part to 2.5%, which I did. That’s why I guess I’ll have around 250k with 50.

[1742]

I believe your AHV pension assumption is wrong. If you live in Switzerland throughout the ages of 20 to 65, you are obligated to contribute to AHV throughout your life. Even if you stop working at 50, it is still Skala 44 that will apply to you (and you will pay contributions between 51 and 65 based on your wealth). You will simply have a much lower average income that will be the basis for your pension.

In other words, you need 3’754’080 CHF compounding income over 44 years to get the full pension of 2’370 CHF/month. If you earn that until 50, you could even get a full pension w/o working many of those years.

Regarding how to consider this: I don’t have actual plans myself (yet), but would free up pension 2 and pension 3 funds at the point of early retirement (likely through a real estate purchase/payment of existing mortgage) and invest that money myself. I do not consider pillar 1 (AHV) as it will likely be out by another 20+ years at the point of early retirement, and given demographic developments I’m not sure how much will be left of it (even though that fear is prevalent in Switzerland for decades now).

[xorfish]

Remember that you have to pay AHV from your wealth. I think it is around 4000 per year for 2 million.

I’m not sure how that counts towards your rent

[Cortana]

Well that’s even better. So you could even expect to get the full AHV rent if your salary from 30-50 is high enough. That translates to roughly 710k CHF (4% rule).

But I’m still not sure how you would manage this. Would you live with a smaller withdrawal from 50-65 and bump it up when getting the AHV? Or take that into account and start with 5%?

[1742]

How about (conservatively) discounting the value of the expected pensions and virtually add it to your principal from which you begin to withdraw? That would be easy to work with, and you simply need to withdraw less once the pension kicks in.

Your example: Retirement at age 50 with 2 mCHF invested, and an expected maximum pension of 28’440 CHF/year. Value of your discounted pension at 7%, is (28’440 / 4%) / (1.07^15) = 258 kCHF, so you can withdraw around 90 kCHF/year instead of 80 kCHF/year without the pension consideration.

This is basically just incorporating the accrued pension benefits into your net worth.

[capmac]

Earning 3’754’080 CHF with a regular job before 50 is questionable. Most people won’t be able to do that.

The years before 65 which you are not earning an income are termed “nichterwerbstätig” in german. You still get to add the minimal income value to the total sum. This is a fixed value, and not the same as the contributions you have to pay. Currently set to 4702 CHF per year I believe. So 15 * 4702 = 70530 for 50 to 65.

By the way you can always ask for an AHV extract and they will tell you when and how much you have paid so far.

[Cortana]

Well lets assume an avg. salary of 100k from 20-50. 15 years with 4.7k gives you a total of 3070k. So 70k on avg or 2160chf/month AHV.

That’s not bad at all compared to someone who worked till 65 and 2370chf/month.

[weirded]

In other words, you need 3’754’080 CHF compounding income over 44 years to get the full pension of 2’370 CHF/month. If you earn that until 50, you could even get a full pension w/o working many of those years.

I don’t think so. AHV is capped to 85’320, everything above should not count towards it. Try to play a little bit with the AHV calculator, you should see that missing contribution years cannot be compensated increasing the yearly salary.

[Cortana]

You aren’t missing any years if you keep paying the minimum amount.

[rolandinho]

If there’s any potential oldish fathers who may be “looking after their child/children/teenagers” in FIRE, they give you an Erziehungsgutschrift for the time a child is under 16 or even over if studying. The Erziehungsgutschrift is a kind of like a fictional income 42k p.a. for your AHV in those years. 10 years of that is 420k. If the wife is not working either then you split that.

[weirded]

You will miss years if you start contributing later than 20 (which was not your assumption - I agree - but it’s my case for instance).
Anyway what I was pointing out is that imo you cannot reach 3.754 Mio earlier than 65 because your contributions are capped to the maximum. AHV is for social security, for higher salaries 2nd/3rd pillars kick in.

[1742]

Just to point out one important distinction again (which I believe is what you are pointing out @weirded):

• If you want the full 2’370 CHF/month pension, you currently need 44 full years of contribution and an average income of 85’320 CHF/year. You can generate that income in earlier years of your life and then stop working, but you need to continue to contribute, for example based on your wealth or through “Erziehungsgutschriften” or your partner.
• If you miss a year (or month for that matter) and end up short of 44 full years, there is absolutely no way to get the full 2’370 CHF/month. You might have earned millions during insured years, but the two step calculation will still first arrive at 2’370 CHF/month and then shorten it to X/44 where X is the years you contributed.

To be very precise regarding @Cortana example: Income of “Jugendjahre” is only considered if you have missing years. If you already have 44 years and only would want to have that income added, you are out of luck.

[xorfish]

That is not quite true. Someone with a taxable net worth of 2 million must pay 4254 chf per year. This results in a virtual income of 4254 / 10.25% = 41’500 chf.

Read on page 28-33:

https://sozialversicherungen.admin.ch/de/d/6139/download

[weirded]

@1742 I think we are in line on the principles.
I had only a quick look at the linked document. If I understand it correctly, you mean that you need to start working on day 1 and then accumulate enough wealth so that - when you stop working - the contribution you continue to pay (based on your wealth only; for sake of simplicity we leave income from wealth away) equals the one you would pay while working with the max. insured salary (10.25% employer + employee you would have to cover fully -> 85’320 * 10.25% which roughly corresponds to a Vermögen of 3.45 Mio at page 31) ?

[Cortana]

Your contributions aren’t capped at 85k. You can compensate your early years (usually with a very low income) with a much higher income in your later years.

Just make sure that you didn’t miss out any years.

[1742]

I originally ignored income credits from wealth based contributions. With this, “simply” earn 3.75 Million CHF before you stop working and you are all set.

But you are correct, you could add the virtual income from wealth based contributions in this calculation, and therefore stop working at age 50 with 2 Million CHF assets, having contributed “only” 3.13 Million CHF and get the remaining 0.62 Million CHF from those contributions over the next fifteen years.

[weirded]

Yes, you are right. You pay the percentage on the full salary, this way you can “average” the max contribution based on different salaries (lower or higher than 85k) in different years.