Current crises and our supply: is the dream of early retirement over?

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The Federal Social Insurance Agency (FSIO) counted 2,470,700 old-age pensions in Switzerland and abroad at the end of 2021. 1.3 percent more than the previous year. However, for the majority of the baby boomer generation—those in their 50s and 60s—retirement is still to come. At the same time, overall life expectancy is increasing. The proportion of retirees is therefore increasing disproportionately.

At the same time, one in every two Swiss people want to retire early and are following a trend, as various surveys show. In fact, about 40 percent of Swiss people have left their jobs prematurely in recent years. Steady economic growth in the 2010s, along with low interest rates, made this possible.

Time is not so golden anymore. The Corona and Ukraine war has shaken not only the society but also the economy. Some raw materials have become scarce, persistent inflation is steadily reducing purchasing power, and the latest banking crisis has caused uncertainty. Crises do not change as before, they overlap – the International Monetary Fund (IMF) speaks of “crisis after crisis”. What is the impact of the current world situation on the widespread desire for early retirement? Does the dream of early retirement come to an end?

The starting position becomes more complex

It is clear that dealing with planning is more urgent today than ever before as the initial situation becomes more and more complex. Future early retirees should consider these four steps.

Here you can basically choose between two variants. Do you want to retire early on day X and directly from your professional life? Or does retirement involve a gradual reduction of the workload over several years? Depending on your personal situation and ideas, one or the other strategy may make more sense. In addition, the question arises what options the employer or pension fund offers, one way or another, and what tax implications this entails.

When we retire, we no longer receive a fixed monthly income as in working life. That’s why anyone planning for (early) retirement should focus far beyond just retirement history. What standard of living is still possible and realistic in the next 20 to 25 years? How should financing be organized so that this standard can also be maintained? Calculating the income gap (the difference between existing pension funds and expected expenditure on standard of living) helps answer these questions. Experts often recommend that when you retire, you need to be careful to provide basic living expenses and adequate liquidity for variable costs and the unpredictable. Depending on the initial situation, this may mean that up to 80 percent of previous income must be present. However, the detailed calculation is individual and depends on many factors. Once the income gap has been calculated, a concept is required to ensure that the pension gap is financed in the medium to long term.

When it comes to a vital question, the answer is never easy to find. One thing is certain: The question of the right form of payment is one of the most important questions to be answered in the context of retirement. Should assets be withdrawn from the pension fund in the form of annuities and/or lump sums? What are the options or are there any restrictions for your own pension fund? As is often the case, the answers are individual. On the one hand, you should know the budget for the next few years, and on the other hand, you should have an idea of ​​how much regular income you need to sleep peacefully. Therefore, in practice, a mixed format is often chosen.

If you want to retire early, you have to plan very well. Because: Every retirement situation is individual and must first be analyzed to identify possibilities and initiate appropriate measures. It would be sweeping statements and a panacea for window dressing – there are too many variables. Pending reforms in old age care (see box) are also creating more uncertainty. It is not without reason that many people seek advice from pension experts. These can help turn the desire to retire early into a concrete plan that takes full account of both financial and personal factors.

For 40 percent of Swiss people, early retirement has not been utopian in recent years. Those with experienced counselors, those who point out various options and plan ahead, may have a better chance of retiring earlier, even in today’s environment.

Find out more about the most important milestones on the road to early retirement here.

Source : Blick