I’m still decades away from it, but maybe some action is needed up to 10 years before the pension age:
If you’d want to pay back your mortgage with a pillar 2 lump sum: how to best time these things together?
A fixed-rate mortgage has a fixed end-date and there’s a penalty for paying it back early. And pillar 2 lump sum can be gotten at multiple possible ages around the pension age, with different consequences for each choice
Depending on the rates and how often you want to renew the mortgage, you may want to extend the fixed rate mortgage for 3, 5 or 10 years, but if you’re in the 50s at that time, you may really have to think about exactly timing the end of it with the time when you’d want to withdraw pillar 2. Otherwise, either you withdraw pillar 2 too late, or too early and are stuck with a ton of plain cash, or stocks that you’d have to sell soon after again.
How flexible are the possible times at which you can withdraw your pillar 2?
Similar questions for pillar 3 by the way, but if you have multiple pillar 3 accounts this can be spread over multiple years so isn’t really relevant for paying back one mortgage.
Does anyone have experience or practical advice around this?
@Zorro Good thread to start years before you need it. The trap I see most often isnt the timing itself, its assuming the lump sum has to land in one shot at one perfect date.
Two things make the whole thing more flexible than it looks. First, most pension funds let you take the lump sum anywhere between 58 and 65, sometimes 70 if you keep working part time. Thats a 7 to 12 year window, not a single date. Second, you can split between annuity and lump sum at most PKs, so you dont have to deploy everything at once.
For the mortgage side, you have two routes. @logitacher SARON path removes the end date constraint but trades it for ongoing rate exposure. Or with fixed tranches, in your 50s you typically renew in 3 or 5 year windows anyway, not 10. That gives you 2 or 3 natural matching points before pension age, instead of one big alignment problem.
So the actual question becomes which combination of pillar 2 timing and mortgage structure gets you closest to the LTV you want at the end. Not “match the dates exactly” but “narrow the gap to under a year and bridge with cash”. A small gap is cheap to bridge. A big gap is the expensive one.
How flexible is your specific PK on the early withdrawal age, and have you already mapped out the natural matching points whether thats SARON checkpoints or fixed tranche ends?
How flexible is your specific PK on the early withdrawal age
Hard to know since this is employer-dependent and who knows who (if any) this is in a few decades!
SARON or very short term fixed rate ones do sound like a good option, thanks!
Very ideal would be if the pillar 2 payment could somehow go directly to the mortgage rather than first to your account. Do arrangements like this exist?
Here is how I think about the withdrawal scheme (I still have 2+ decades before I do this). You can withdraw from your pillar 2 every 5 years for promotion of homeownership ( buying home or subsequently reduce mortgage debt). My spouse and I are same age.
Age 58: withdraw a chunk (50-100k: less or more as per your situation) from my pillar 2 to reduce mortgage.
59: similar from my my spouse’s pillar 2
60,61,62: Withdrawals from pillar 3 (both spouses)
63: another chunk from my pillar 2
64: my spouse’s pillar 2
65: pension
Or you can start with withdrawal of pillar 3 at age 56/57. It needs SARON for pretty much all of that duration.
Another way is to make 3 years fixed starting in your 50s and you and your spouse alternatively taking money out of your respective pillar 2 to reduce mortgage. Creates a gap of 6 years between 2 withdrawals from same pension fund. So you have opportunities at age 64/61/58/55/52/49
For a single earner, make it 5 year fixed terms starting at age 49. You can withdrawal at age 49/54/59/64 : 4 opportunities to move money from pillar 2 to reduction of house debt.
Check the exact withdrawal window with your provider because it usually opens about 5 years before the official retirement age. I looked into this recently and the tax hit changes based on the year you take it out. Just sync the mortgage maturity to that earliest possible date.
Can you not withdraw from pillar 2 for the specific purpose of down payment or reducing primary residence mortgage debt anytime? (With the legal min gap of 5 years between 2 withdrawals).
I am assuming a normal pension fund in decent health.
More than the mortgage period, We should be more worried about the capital withdrawal tax, for a 1M can be as little as 50k and >100k depending on the canton you reside.
ideally you staggered across years. Even though I aM Unlikely to go for full tax optimization. At some Point, I just want to be debt free fast enough. But some optimization I am planning.
for example starting with my wife pillar 2 as her pension fund interest is often low (max 2-2.5%, often lower than 2%), then mine that goes at almost double than this. Then Pillar 3s. So max 3-4 staggering, No more
Very interesting topic, one side question - how does the rationale for doing this look like? In what scenarios does reducing the mortgage using pension money make sense?
My thoughts exactly. Raiffeisen might be the bank with the most mortgages and they have solid know-how along with lots of data points about actual clients’ behavior. Asking them a bit closer to the event might be a wise choice.
I’ve attended their webinar and they mentioned the following input parameters to deciding about old-age mortgages:
Want to keep owning the home?
What are opportunity costs between mortgage rate and investment return?
How does the bank calculate affordability if there is little income and mostly wealth?
Want to hand over home to family while keeping the right to live there or some usufruct arrangement?
How does the future tax law in your canton influence decisions?
Sure, you can game-theory it out but your plan might not age well.
Expected employment and overall marriage employment situation
Desired use of pension fund
If mortgage interest is very low and pension fund return decent, then whilst you reduce interests to pay, you get increase wealth tax (I would say always not enough to offset savings from interest). So you could be better off. However capital withdrawal tax may take a long pay to pay back.
if you are in no rush to close off mortgage and you / partner are safely employed then you could save on wealth tax
third point somehow contradicts above. If you plan to withdraw pillar 2 for home Purchase then timing matters less as you would need to pay withdrawal tax anyway. Small Differences in effective rate but not huge
@Zorro Yes, that exists. Its called WEF Vorbezug. The PK pays the lump sum directly to the bank, not into your account. You file the form, the bank confirms, the PK transfers. Two to three months end to end in practice. The capital withdrawal tax still gets billed to you separately, so the cash flow looks cleaner than the tax flow does.
@evertruelife the rationale question is where I think this gets interesting. The narrow case is “we want to be debt free at retirement” or “we want to drop the LTV under the second tier premium”. The pure tax play penciles thinner than people expect once you net the wealth tax savings against the capital withdrawal tax.
The bigger frame I find more useful is “what does the post-pension cash flow look like with debt vs without”. Some people sleep better with no mortgage. Some prefer the optionality of keeping leverage and the cash. Both are valid and the math alone doesnt pick the answer.
This is one of those things that probably matters more in your 50s than people realize. I’d personally avoid locking into a 10-year fixed too early unless the pillar 2 timing is already pretty clear.
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