If you want to reach Financial Independence and be able to retire, you need to know how much you are going to spend while retired. If you are retiring next year, it is really easy to know how much you are going to spend. However, if you are going to retire in a long time, it is not trivial to estimate your retirement expenses.
I have already talked about the different ways tor each Financial Independence (FI). Regardless of which way you choose to reach FI, you will need an accurate estimation of your retirement expenses. Without this, you will not be able to know how much of the road remains.
You could think that you are going to spend exactly the same as you spend now. But this is quite wrong. You need to take into account many things. You will normally pay fewer taxes. But your health expenses are likely to increase. And inflation will increase your expenses significantly over the years.
In this post, I am going to cover the main points that will impact your retirement spending. It is not a surefire way to estimate your retirement expenses. But it will definitely help if you want an accurate estimation.
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In Switzerland, you can do a voluntary contribution to your second pillar. The second pillar is the Swiss equivalent of a 401(K). These contributions come with some tax advantages since you can deduct that from your income. Therefore, you have a return equal to your marginal tax rate. However, the money is then blocked into the second pillar. And the returns on that blocked money have been very low in recent years. Finally, you can only withdraw the money from your second pillar if you retire, if you buy a house or if you start a company.
One question that I actually ask myself these days is whether I should contribute money to my second pillar or continue investing in stocks. These days we are able to invest enough money each month that I am wondering about this. I could contribute some money to my second pillar and continue to invest enough in stocks. But is it a good solution. In this post, I am going to try to answer this question.
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I recently compared the different third pillars available in Switzerland. I quickly came to the conclusion that VIAC provides the best third pillars in Switzerland. VIAC third pillars are cheap and have a very good global diversification. Moreover, you can have up to 97% of your portfolio invested in stocks. Before, my only problem with VIAC was that they are mobile-only. But I need to go over this small problem and be smarter about it! And since PostFinance increased their fees, I decided to walk away from them earlier than I planned.
Now that I have chosen my new third pillar, it is time to do the transfer. For this, I first have to open an account at VIAC. Then, I have to transfer my existing third pillar money from PostFinance to VIAC. In this post, I am going to describe the steps necessary to open a VIAC third pillar. In a second time, I am also going to describe how to transfer an existing third pillar to VIAC.
As you will see it is incredibly easy. If you think it is difficult to open a new third pillar and transfer your existing third pillar money on it, then I hope I will convince you that it is trivial! You should not delay changing a bad third pillar for a good one by the fear that it is difficult. Because it is not!
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My third pillar is invested at PostFinance in the PostFinance Pension 75 fund. This is a fund that invests mostly in Switzerland, with 75% of stocks. It is not a bad fund at all. However, a few things made me want to reconsider this third pillar.
First, the TER is a bit high. You pay 0.98% for holding this fund. It is not really bad since TER for retirement funds in Switzerland is quite high. This is already one of the best funds. But it is always better to reduce that TER even further when possible.
Secondly, PostFinance recently increased its account fees. Before, I was not paying anything for all my accounts at PostFinance. However, I will now have to pay 60 CHF per year to keep my money at PostFinance. Therefore, it is time to change. I am in the process of switching to Migros bank for my bank accounts. But I need to find a new third pillar provider to replace the one from PostFinance.
And also, it has been a while I wanted to study in details VIAC. This is a new provider of third pillars. It has some very interesting advantages.
In this post, I am going to try to find a new third pillar for me in Switzerland. Let’s see what Switzerland has to offer :)
Continue reading “Is VIAC the best third pillar in town ?”
The previous three posts of the series covered the three pillars of retirement in Switzerland:
In this final post of the series, I am going to summarize over the entire system. I am also going to talk about how early retirement works in this system.
Continue reading “The three pillars of retirement in Switzerland”
I started this series with details about the first pillar. I then continued with information about the second pillar. This post will cover the last of the three pillars, the third pillar. This pillar is the only one that is not mandatory. Everybody is free to choose to invest in the third pillar or not. It is simpler than the second pillar. But there are much more choices than you can make.
In this post, you will find all the details you need to invest in a third pillar. And also, what you can do to optimize your use of this last pillar.
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We have studied the first pillar and Switzerland three pillars system in the previous post in the series. Now, it is time to see the second pillar. The first pillar covers the basic needs of everybody. The second pillar is here to cover a larger part of your salary than the first one. If you never worked, you will never pay anything for this and you will never receive anything from this. It is significantly more complicated than the first pillar.
In this post, I am going to try to give you as much important details as possible on the second pillar. I am also going to try to help understand what you can do to improve it.
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Switzerland retirement system is based on a system with three pillars. Each pillar is paid in a different manner and will cover different needs. If you are working in Switzerland, it is important to know these three pillars. This will help you plan your retirement.
In a series of posts, I will try to give you enough information on these three pillars. The goal is that you have a good understanding of how they work. And also what you can do with them to improve your retirement. In this first post of the series, I will introduce the system and talk about the first pillar.
Continue reading “The first pillar of retirement in Switzerland”
For the first time, I have computed my Financial Independence (FI) ratio. In this post, I am going to explain to you what is FI and how to compute your FI ratio.
First, what is Financial Independence (FI)?
It is when you have enough money to sustain your lifestyle without working. For this, your wealth must generate income. And this income must be greater than your expenses. The main way to generate income from your wealth is simply to withdraw from it. However, you need to withdraw little enough to sustain your wealth for the longest time. This is only one of the ways to reach Financial Independence. This is the most used way. Some people prefer to focus on passive income. And some people focus entirely on real estate to become financially independent.
There are many reasons to become Financially Independent. It is currently very popular on the internet. Especially with the Financial Independence and Retire Early (FIRE) philosophy. The idea is to become Financially Independent as soon as possible and retire early.
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In Switzerland, the third pillar of retirement can be either in a bank account or in the form of a life insurance. The bank account option is the obvious solution. This is a special form of life insurance. You will get some part of your capital back at the retirement age (65 years old currently). In the case you die, your spouse will get the capital. Moreover, most of these insurance policies also cover the case where you cannot pay any more. Not if you stop paying, of course. But if you become handicapped or unable to work. In this case, the insurance will cover your fee while you can’t work.
I am not sure this is a good deal for everybody. But I think it is a good deal for me. My future spouse does not yet work and will not have a full retirement pension once she retires. Thus, if I pass away, she will have a good cover from my life insurance. For some people, it is also a good way to force them to contribute to their retirement savings.
I pay 300 CHF each month for this insurance. Until now, I have always counted that as an expense in my budget. But, I now realize it is not really an expense. It is similar to the payment I do to my bank third pillar. And I do not account for these as expenses. This is an investment. So, I decided to remove this recurring expense from my budget. Since we are close to the beginning of the year, I also decided to remove it from January 2018 and February 2018. This means that my savings rate is better in these two months. It is now 33% in January and 4.2% in February. I will update the Savings Rates shortly.
However, my Net Worth does not get better since the current value of the insurance is 0 CHF. If you take out the insurance in the early years, you lose everything. In fact, I will start accounting the insurance as Net Worth in September 2018. I believe this makes my accounting better and more accurate.
What about you? How do you account for your retirement life insurance? Do you have one?