Early retirement: wishful thinking or sustainable in the long term?

Many working people long for early retirement. However, this decision has a major impact on the future financial situation.

Experience shows that 1 year of early retirement costs one year's income. Early retirement is therefore not favorable at first glance, but it does not have to be ruled out in principle. It is of central importance to deal with the issue at an early stage. With the help of financial planning, the long-term effects can be recognized, visually presented and the right decisions can be made.

Early retirement has an impact on retirement benefits. Due to the shorter contribution period, the pension capital is lower. At the same time, the pension conversion rates fall. In addition to the pension fund benefit, the AHV pension is generally also due. In principle, this can be drawn up to 2 years before the normal retirement age. Here, too, early withdrawal reduces the benefit.

In addition to the income, one must also deal with the expenses. By listing fixed and variable expenses in a financial plan, it is possible to determine whether the accustomed standard of living is sustainable in the long term. Financial planning can also be used to simulate and compare different options. In addition to the standard costs, it is essential to include larger expenses for planned renovations, car purchases or other items in the planning. Furthermore, if you own a property, it is essential to clarify the long-term mortgage amount with the lender in advance.

If you are planning to retire early, you should consider the possibilities and risks early on. It is advisable to start thinking about retirement from the age of 50 at the latest. Every year gained in planning is worth its weight in gold.

With increasing age, income often increases and with it the tax burden (success at work, children leaving education, return to/addition of workload). It is then important to optimize the tax burden in favor of retirement provision, e.g. by means of contributions to pension plan 3a, pension fund purchases and renovations to real estate. In order to achieve the maximum possible savings, the various options must be coordinated. While the contributions to pension plan 3a are defined by law, the options for occupational pension plans vary depending on the pension fund and pension plan. Any missing contribution years can be contributed to the occupational pension plan and deducted from taxable income. Before making a purchase, it is essential to find out about the financial situation of the pension fund and the extent to which the purchases are covered in the event of a risk. Furthermore, the last purchase should be made at the latest 3 years before the cessation of employment (capital withdrawal blocking period 3 years from purchase).

For the self-employed, it is important to review the pension fund solution on an ongoing basis and adjust it accordingly (insurance basis, risk benefits, savings contributions). This often makes it possible to reduce costs and increase flexibility.
As explained above, time is literally worth its weight in gold. We will be happy to answer any questions you may have in connection with your planning and retirement.

Valentin Chiquet
BSc HES-SO in Business Economics
Financial and pension advice
vch@core-partner.ch