AHV, pension fund and pillar 3a: You should avoid these mistakes when planning for retirement

class = “sc-cffd1e67-0 fmXrkB”>

The pension provision is an issue that concerns many Swiss people. You’re right, because you want to be financially independent in your later years. A person must have sufficient financial resources to maintain his or her standard of living.

Personal initiative is required for this to be successful. On the one hand, the three-pillar system, which has existed since December 3, 1972, is subject to negativities – financing problems arising from demographic developments or lack of reform – and on the other hand, there are mistakes that can cost you dearly. Darling.

The top 10 mistakes when it comes to “retirement provision” at a glance:

Mistake #1: Not doing your own retirement planning

“One of the biggest mistakes is not taking care of your personal retirement situation or not fully trusting your partner in this regard,” says Andrea Klein, head of the expert center for financial planning at Raiffeisen in Switzerland. Separation can have serious financial consequences, especially for partners who live together and do not work at all or only work part-time. In the event of separation, the retirement assets accumulated in columns 1 and 2 during the time spent together as a couple are not entitled. This is especially harmful for the person who primarily handles household chores during the relationship.

Mistake #2: You start planning for your retirement too late

“Many optimization options need to be started early in order to benefit fully from them in retirement,” says Andreas Lichtensteiger, retirement expert and managing director of Vermögenspartner. So, you should start planning for the first time around the age of 40-45 and take the necessary steps. This includes, for example, an additional 3a account if the balance exceeds approximately 50,000 francs. If you don’t, you’ll often pay a lot of taxes when you withdraw money because you can’t do it in stages. At this age, it also makes sense to pay attention to building assets and plan investments for the period until retirement.

Detailed retirement planning also makes sense starting from age 55. At this point it might make sense to take a closer look at the acquisition of the pension fund, for example. At the same time, a change in living conditions (change of place of residence or divorce) should be used to check your precautionary measures and, if necessary, reorganize them. In general, the earlier you address the issue of retirement, the wider the scope for action.

Mistake 3: Not taking special precautions or taking them too late

After retirement, the first pillar (AHV) and the second pillar (pension fund) cover only 60 percent of the final salary. Taking special precautions too late or not at all can result in a boomerang. The higher the income, the larger the pension gap usually is. “It is very dangerous to do nothing and rely on AHV,” warns pension fund expert André Tapernoux of consultancy firm Keller Experts.

The most popular tool in Switzerland when it comes to private service provision is the connected column 3a. Thanks to this retirement fund, your own retirement income, which is already protected to a certain level with the help of the first and second pillars, can be further improved. A certain amount is paid to the relevant account every year. The maximum payment amount for employees connected to a pension fund through their workplace is currently 7,056 francs. A positive side effect: You can also save tax by paying in column 3. The amount paid can be deducted annually from your taxable income. Here’s what else to consider regarding Column 3a.

Mistake 4: Investing incorrectly or not investing at all in the private sector

When saving for a private pension, you should never put all your savings in one place: This is especially true for illiquid investments such as real estate or companies. However, holding too much cash is not the solution. Cash has no return, and bank accounts often have interest rates lower than inflation.

Anyone with a long investment horizon can take risks and therefore earn higher returns. The longer the investment horizon and the higher the return, the stronger the compound interest effect. On the one hand, you let the money work for you, and on the other hand, you protect your assets from inflation. The same situation generally applies to the period after retirement. “Even in old age, money that is not needed for long-term living needs should be invested in securities,” says Klein.

There are also dangers lurking in investing in stocks for retirement: “Those who worry too much often act irrationally, for example by selling shares after a crash or buying investments that have risen sharply in the last few years,” says Tapernoux.

Mistake 5: Not taking external factors into account when planning

Changes in external factors are often underestimated when planning for retirement. It should be taken into account that inflation must be balanced in the long term in order to protect living standards. Because only in the first column (AHV) there is inflation protection for pensions. Average inflation in Switzerland has been around 1.5 percent over the last 45 years. Cash.ch showed here what inflation means for the Swiss pension provision. “Potentially lower conversion rates in the second column or a possible AHV revision should also be taken into account,” adds Lichtensteiger.

Mistake 6: Assuming expenses will decrease after retirement

“One of the biggest moments when planning for retirement is often the difference in income calculated in retirement compared to current income while working,” says Klein. It’s unrealistic to reduce expenses by more than 20 percent after retirement while maintaining your usual standard of living. For example, the tax burden does not decrease as much as expected. As retirees become healthier and live longer, new and more expensive demands emerge in terms of consumption and leisure behavior. They also have more time to fulfill personal desires, such as longer trips, which cost more money.

Mistake 7: Neglecting the tax issue

«Retirement planning is often also related to tax planning. This is where most mistakes are made. This is very frustrating because large amounts are quickly involved and decisions can no longer be reversed,” says Lichtensteiger.

You should deposit money in column 3a if possible, because the amount paid can – as already mentioned – be deducted annually from your taxable income. The same applies to voluntary payments to the pension fund. Anyone who withdraws their pension fund, benefits and Pillar 3a assets over a few years can easily save several thousand francs. Partial retirement or early withdrawal to become homeowners can also provide significant tax savings. It is important that these measures are coordinated with each other to achieve the greatest possible impact.

Mistake 8: Planning on the basis of incomplete decision making

Making important retirement provision decisions based on gut instinct, without precise calculations and comparisons, can be irreversibly expensive. “For example, whether it is worth purchasing a pension fund, whether it is an AHV advance withdrawal or deferral, whether you are taking a bridge pension or a lifetime annuity can be calculated individually and precisely,” says Lichtensteiger. You can find out here what the ideal age is for voluntary retirement fund purchases.

The same applies to the issue of early retirement: if you add up all the data exactly, the financial impact of retiring one year early can be calculated almost to the franc. In addition to the lack of earned income, early retirement also results in a lower conversion rate, which puts more pressure on finances. How strong the effect is depends on many factors and the individual situation. The issue of “pension or capital” is also filled with a lot of emotions for most people. The advantages and disadvantages can be carefully weighed against each other.

While the main advantage of a pension is security, the main advantage of a lump sum is flexibility and the protection of surviving dependents, especially children. It is also worth noting that the pension received from the pension fund is often not covered by inflation, and therefore the pension gradually loses its purchasing power. This disadvantage when attracting capital can often be offset by a suitable investment strategy, but some investment risks must also be acknowledged. Therefore, when planning retirement, it is important to determine an investment strategy that suits your personal circumstances and apply it consistently and in the long term.

Mistake 9: Underestimating contribution gaps in AHV

Each year that contributions are missing, the AHV reduces the pension by 2.3 percent. Even those who are not working are subject to AHV until they reach the reference age after reaching the age of 20 as of January 1. Students, world travelers, and many early retirees don’t realize this. A non-binding estimate of the AHV pension can be made here.

Mistake #10: not requesting money from the second column

If you are about to change your job or are about to leave your employer involuntarily, you will need to arrange for benefits from the old employer’s pension fund to be transferred to the new occupational pension fund or vested benefits trust if you are not working. Many employees are unknowingly unable to claim benefits when they leave their employers.

Anyone looking for forgotten pension fund money can make a free request to the 2nd Pillar Head Office. All you have to do is fill out a form with your name, address, date of birth and AHV number and submit it. This search is free.

Source :Blick