Plus of course “risk-adjusted”
At least sp00t said so, didn’t he?
You also (potentially) save on wealth tax with Pillar 3a.
Aside from that, yes. In theory, if you outperform the allocation you would have in 3a consistently, through compounding you would eventually catch up.
However, if it’s a good idea to make such high risk investments for your retirement savings AND if you will be self-disciplined enough not to spend the money on a Porsche is another question.
The calculation seems right, the only thing is that the assumption of 10% yield from real estate investments seems extremely optimistic.
As an actuary, I can attest to the (relatively trivial) fact that your expectations (and hence your decision-making) are heavily dependent on your selection of assumptions!
So I think your mathematical reasoning is sound. Ultimately though, those are standard modelling issues. Indeed, as other users have pointed out, it’s about trying to think of all the variables that might affect your outcome (e.g. expected return of your 3a asset allocation, expected return of your post-tax investment(s), investment horizon until your retirement/departure from CH, marginal tax rate, dividend/capital gain proportion, lump sum tax rate, etc.), and then making assumptions about those—the hard part!
Actually, I had once shared a small spreadsheet here that I use to determine whether a contribution in the second pillar (or in the third pillar, it’s the same concept) is worthwhile. Here it is again:
The spreadsheet is pretty simple, and can probably be improved tenfold, but I think it gets the job done. Indeed, its objective is merely to determine whether making a contribution into the 2nd/3rd pillar could be advantageous or not, taking into account all the major variables that I could think of. As mentioned before, its heavily dependent on assumptions though, so make sure to plug in your own! (convention: input is in blue, calculated fields in black).
That being said, one critical aspect that is NOT modelled here is risk (or volatility). Indeed, as other users have pointed out, a 10% return is likely to have a higher volatility, so that should be taken into account in your decision-making as well. In any case, that would require stochastic modelling (with even more assumptions!), so beyond the scope of this little tool
Hope this helps.
2 posts were split to a new topic: Optimize my finances before leaving for Spain
apologies, I did not want to open a new thread but hope I can find help here.
My question is: Is having a 3a generally considered a no brainer or will I have to do some math. As probably all of us I don’t mind crunching some numbers, but I thought maybe it’s enough of a clear cut case that I can get away without it.
- Non-Swiss planning to return to EU in 5-25 years (won’t retire here)
- Income currently in quite beneficial source tax, despite getting my VT dividends withholding tax back, the benefit of maybe ~1000 CHF tax refund per year from requesting regular taxation (“NOV”) would come almost 100% from the ~7000CHF Pillar 3a break
The way I see it, it is a tradeoff whether I should open a Pillar 3a and request ordinary taxation:
- Immediate “cashback” of those 1000CHF
- Arguably worse investment of 3a vs pure VT ETF portfolio (higher fees)
- Need to pay tax when moving out of CH and closing 3a
Especially the last point is if interest to me - if I am not a top earner now (<150k, single, ZH) and I will close it long before retirement when moving away, is it possible there are not really any tax benefits for me because this withdrawal-taxation might be close to my current marginal income tax? Adding to this the fees for investing etc…
Again, willing to crunch it myself but wondering if I am overthinking it?
As far as I‘ve read (on the forum) lately, ordinary taxation is less and less becoming an option but more an obligation if you have substantial non-employment income.
Pillar 3a is probably a no-brainer if
- you’re on a decent (doesn’t have to be very high) salary/income and
- your marginal tax rate is not small
- you manage to cash it out on a moderate or lower tax rate
As you anticipate, it very much hinges on the tax treatment in your country of residence when cashing out. Only having to pay Swiss withholding tax on the lump-sum payout (in one of the low-tax cantons that your pillar 3a provider is domiciled in) makes it a no-brainer. Full income tax in a high-tax EU country of residence on the other hand? Much less so.
I am quite a rookie on this topic. After reading the first post, I am 100% convinced to invest in 3a, actually I already am with credit suisse a few years ago with an random choice of the fund. Now the two independent(?) questions I am facing are
a) which bank to choose, if choosing the same fund
b) which fund to choose, if choosing the same bank
c) which bank offers fund as close to SPY as possible? (personal preference)
I guess the VIAC would be the obvious choice, but still I want to know more of the thinking process. So what are the metrics to compare here ?
- Is there management fee of the bank?
- commissions to buy?
- commissions to sell?
- Anything more?
- management fee of the fund?
- anything more?
…since they offer the iShares Core S&P 500 ETF.
Members of this forum have zeroed in on VIAC and finpension (which do offer MSCI USA index funds).
Thanks for the reply
I tried to find on their webpage how much the fee charged by VIAC if I invest iShares Core S&P 500
Pillar 3a: Fees – VIAC and Pillar 3a: Strategies – VIAC
All I see is TER 0.7%, fee charged by the blackrock and the following vague sentence
Then 0.00% – 0.44% total costs incl. product fees
Maybe I missed this information?
Also, did you read that primer on pillar 3a providers on MP‘s website?
no i didn’t! thank you for pointing that to me. Gonna read it right now.
I didn’t think 3a was worth it due to poor performance until VIAC came along and tipped the balance in favour of investing. Liquidity option remains through: house purchase, starting company or leaving the country and so I don’t consider it truely locked up as long as you have a mortgage to pay off.
The only thing is that I didn’t keep up to date on the rules for cashing them out. Someone mentioned that you have to do this within 5 years of retirement. Is this still true? It can be worth having more than 5 accounts as you can close some of them before retirement to pay off mortgage (or start a company) so some additional flexibility and tax savings there.
As far as I know, paying for a mortgage for your own home or for renovatiom is one of the exceptions to withdraw part of an account instead of the whole account, but only before turning 60.
Yes, you can do partial. So you might want to keep one or more separate 3a for the planned pay off (perhaps with a specific low volatility strategy). Or alternatively use it to tactically reduce the value of an existing 3a account to achieve a better staggered withdrawal.