Third Pillar allocation for early exit

Dear Mustachians,

I am about to open my first third pillar account. The situation is that I am expecting to move out of Switzerland in ~5 years, and so I would be able to withdraw my 3rd pillar savings then. In that case, the tax deductions are very appealing.

In terms of allocation, I am hesitating between two scenarios (both possible on VIAC, where I’m planning to open the account):

(a) Invest ~100% of the 3rd pillar in stocks, and reflect the positions on my overall portfolio allocation tracking.

(b) Keep 100% of the 3rd pillar in cash (0% fees, +0.3% interest / year), and account for this as “bonds” / fixed income in my overall allocation tracking.

I am currently leaning towards option (b), as it seems too risky to take positions that I couldn’t hold longer than the date of my departure from Switzerland. In case of a market downturn, I would be forced to sell low.

Does that make sense? Are there any arguments in favor of option (a)?

Regarding option b), 0.3% is very low for blocked money. Therefore, the only appeal is what is your expected tax return. If you put in the usual 6700 CHF per year, how much do you expect to get as a tax return? if it is around 1’500 CHF, then you have an easy 22% every year (but not compounded).

Regarding option a), your starting point is the same 22%. I agree that given current valuations, it is quite likely that we will have a good correction in the 5 next years. The only thing is, we do not know when.

  • The very best case is : no correction at all, quite unlikely -> In this case option a) is much better
  • If there is a correction :
    • second best case is, it comes quite soon : your first contributions will be impacted (let’s say you lose 3’000 CHF the first year), but the other years are a recovery. In this case, option a) is still a little bit better.
  • very bad case is : the correction comes quite late, i.e you made all your contributions, and the 5th year the market tanks 60% -> No need to tell you that this is bad for you and option b) is better.
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So what? You sell low and buy low right away, continuing to stay in the market. You’ll pocket the tax difference and there will be no more strings attached to this pot of money, it’s a win win

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…you’re right, that makes a lot of sense. One could see I’m new to this :sweat_smile:
Thanks!

You can also have up to 0.6% per year for example at the WIR bank. Take a look at comparison of interest rates at https://www.moneyland.ch/en/pillar-3a-comparison

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Have you considered the tax implications of withdrawing the funds (both in Switzerland and the country you will be living in when withdrawing the funds)?

good point:
when cashing out 3a (or pillar2 other than for retirement) do taxes apply?^^ anyone knows? I’d expect the same as those o retirement?

Kapitalauszahlungssteuern apply on the swiss side, regardless of what you withdraw it for

If you withdraw after moving out of the country, taxes in your new country of residence may apply, and you may or may not get CH taxes refunded. US is particularly evil from what I hear: they won’t sign the paper needed for CH tax refund and may tax the whole withdrawal as income on their side.

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