What you should know about retirement planning

Portrait Jackie Bauer

The topic of retirement planning is currently extremely relevant. But what exactly is it that you need to do? In this interview, UBS pension expert Jackie Bauer provides an overview. She explains what you need to know about retirement planning, how to avoid typical mistakes, and why the right time is "always now".

Retirement planning - this is a topic that many people do not like to deal with. But what should everyone know about it?

Unfortunately, very little in life is possible without finances. Nevertheless, you don't need to become an expert or deal with the topic every day. If you take a targeted approach to retirement planning, you will save yourself nasty surprises in the long run and have peace of mind. 

When is the right time to take care of your pension? Is it too late at some point?

The right time is "always now". The earlier you start setting the course, the easier it is and the less effort it will be overall. But it is never too late. You can always optimise something.

How do you get an overview of the status of your pension provision?

It usually makes sense for you to: 

1. Request an account statement or a pension projection from the cantonal AHV compensation fund. 

2. Look at your pension fund statement regularly and possibly request a simulation of the pension here too. 

3. Draw up a budget to get a feel for the relationship between income and expenses during working life and in retirement. This makes it easier to assess whether your income will be sufficient in retirement. 

By the way, a budget is also great during your working life. You can quickly see how much savings potential you have. In my experience, that's more than most people think!  

What are typical mistakes in retirement planning and how do you avoid them?

There are classic examples:

Relying completely on the partner (in many cases the husband). Whether it is that he puts aside enough for the AHV and the pension fund so that there is enough for both of them, or that he manages the finances in general. It’s worth it if both of them at least participate in the financial decisions and ideally also build up their own pension fund. 

Relying on the system. The AHV is not secure, because due to demographic developments there are fewer and fewer working people who have to finance more and more pensioners through their payments. This calculation does not add up. And pension fund pensions are currently too generous, considering what the financial markets are delivering in terms of secure returns. To protect yourself against this, it makes sense to save privately with a 3a pillar. 

Relying on the children. On the one hand, the classic distribution of roles among the younger generations no longer exists, and on the other hand, the children have to take care of themselves more and more due to the gaps in the system.

What should one pay attention to when taking a longer break from work (e.g. parental leave)?

It is important to think not only in the short term but also in the long term. You should think carefully about why you are taking this break and what the implications are. I understand, for example, if someone stays at home for the children because "daycare is so expensive that my whole salary would go to it anyway". But what is often forgotten is that money is not the only factor. One should also consider the impact on AHV and pension funds, as well as the network and professional skills that become less relevant over time and without which a later return to work can be difficult.

Part-time work and a reasonable pension fund to live on in old age. Are they mutually exclusive? 

Not necessarily. In the end, it's always about living within your means - not only at the moment, but also in the future. In other words, if you want to work less today, you have to know what that means for your pension provision and also align your own lifestyle with it in the long term. 

What should you do if you have gaps in your pension?

Fill them up. But pension gaps are subjective. You have to have as much capital or income as you need to finance your lifestyle. That's something everyone has to decide for themselves. When filling the gaps, I would recommend the 3a pillar first, as this pension capital is not affected by the difficulties of the 1st and 2nd pillars. Then, depending on the situation - employer, pension fund health, income, taxes, age, etc. - one can also consider the 2nd pillar. 

Are there special regulations for married couples concerning retirement planning? Or any that should be kept in mind in the event of a divorce - and ideally determined in advance?

For me, a holistic retirement plan also includes designating a power of attorney. Who should make financial and medical decisions for you or take care of the children if something happens to you? It therefore makes sense to have a mutual power of attorney for your bank accounts, a will and a living will as well as a marriage or cohabitation contract. Of course, these are not the most romantic moments in a relationship, but in most cases, you do them once or twice in your life. It gives you the certainty that everything is taken care of in case of an emergency. That's worth a lot. 

When does it make sense to pay into the 3a pillar? Is it really a pension solution for everyone?

Yes, the 3a pillar is a great tool for accumulating long-term retirement capital and saving taxes at the same time. It makes sense at any time. Of course, you can also do this without the 3a. But most people lack the discipline to actually save these savings for retirement and not touch them. That's why I would prefer the 3a. If you own your own home with a mortgage, you can use the 3rd pillar for indirect amortisation, i.e. pay in 3a capital, invest it, multiply it and since the bank has this money as collateral, you have to pay less direct amortisation.  

What solutions are there for the 3a pillar and how do they differ?

You can choose between doing a 3a pillar with an insurance company or with a bank. Both have advantages and disadvantages. For me, the advantages of a bank solution outweigh the disadvantages - here you only pursue the goal of accumulating capital and have maximum flexibility within the 3a. You should take out an insurance policy specifically for the cases for which you need it and exactly when you need it. 

Should you invest the money in the 3a account? If so, how?

Absolutely. This is especially important for young people, because when investing, time is on our side. If it just stays in the account, the money loses value in the long term. The longer the time horizon and the greater the personal risk tolerance, the more you can invest in shares. In many cases you benefit from this, especially from the compound interest effect.

When does it make sense to have several 3a accounts and what should I bear in mind?

Multiple accounts only make sense if you can draw on them separately and thus break the tax progression. When you dip into your 3a account when you retire, you always have to empty the whole account and once paid in, you can't split it up anymore. So you have to think about it carefully in advance. The law allows the 3a pillar to be withdrawn up to five years before the normal retirement age. Therefore, a maximum of five accounts makes sense. However, you should check with the relevant tax authority whether they see it that way.

Finally: What advice would you like to give to all readers?

Taking precautions is like going to the gym - lying on the sofa is much more comfortable, but after you've worked out for an hour, you feel much better afterwards. And it contributes to a healthier ageing process if you feel good about your pension planning.

Jackie Bauer is an economist in the Chief Investment Office of UBS and is responsible for research on the pension system and related investments. Her expertise is in the Swiss pension system and investment advice at a personal and institutional level. Previously, Jackie worked as a cross-asset strategist and in various project and product management roles at UBS. Jackie holds a Bachelor's degree in International Business from Victoria University in Melbourne and a Master's degree in Management and Economics from the University of Zurich. She also holds a CFA charter, is currently pursuing a PhD in political economy and is a regular speaker.

Awina actively supports families in financing their daycare needs with the help of earmarked loans and thus advocates for a better work-life balance. Because it’s important for parents to stay involved in the workplace and thus avoid gaps in their pension funds.

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