Whereas earlier periods of life are often spent earning money to satisfy family needs, build businesses, finance property or pay debts, retirees finally have the time to opt for activities such as travelling, pursuing hobbies, spending more time with family and friends, or perhaps doing community work or other activities which give them satisfaction and a sense of achievement.
Thomas Bopp, Senior Financial Planner, has been advising clients for over 25 years. “One of the pleasures of my role is that I get to know my clients very well within a short time and I get to ask them all sorts of questions about their aspirations for later in life,” he says. “Perhaps they want to travel the world, or keep a holiday home in a beautiful location, or indulge their passion for sailing. At the end of the retirement planning stage, it’s very satisfying to provide them with solutions that can help make their dreams come true.”
What age should you start planning?
The most important asset any of us have when planning for our retirement is time. The more of it we have until retirement, the easier it is to achieve our retirement goals. Yet many of us delay getting started. In our 20s, retirement can seem too far ahead. In our 30s and 40s, other areas of our lives and finances may take precedence – such as our families, our businesses, our mortgages – and by our 50s, we may feel that it’s too late and our options are limited.
“Ideally, you should start planning as soon as you begin your career or shortly after,” says Manuel Romer, Head of Wealth Planning Pensions. “Even if you only contribute a small amount initially, the longer your investments have to grow, the more time they have to generate returns, and the power of compounding returns can work in your favour over several decades and significantly boost your savings.”
What’s more, starting early allows you to adapt to potential challenges. “Early planning provides a buffer to adapt to unexpected events or financial setbacks,” says Manuel. “It allows you to make adjustments to your retirement strategy, such as increasing savings or adjusting investment allocations.”
Planning for the future brings lifelong benefits
The discussions the Wealth Planning team have with clients aren’t focused solely on retirement. As Thomas Bopp explains, they take a holistic view of a client’s wealth situation, devising strategies to optimise it across the board. However, he says that retirement planning is one of the most effective levers you can pull to secure your overall financial well-being. “Effective retirement planning helps you establish multiple sources of income, for example by maximising contributions to retirement accounts, taking advantage of employer-sponsored plans, or considering other income streams such as rental properties.”
Retirement planning also brings numerous benefits long before a person finally decides to clock out of work for the last time. “Knowing that you have a well-structured retirement plan in place can give you peace of mind,” says Thomas. “It reduces financial stress and allows you to enjoy your life without constantly worrying about money.”
What’s more, a retirement plan also plays a crucial role in wealth preservation. “By strategically planning withdrawals from retirement accounts, considering tax-efficient investment strategies, and understanding the tax implications of various retirement income sources, you can minimise your tax liability and maximise your after-tax income.” Likewise, with enough foresight you can protect against the erosion of your purchasing power over time. “Retirement planning takes inflation into account, allowing you to invest in a way that aims to keep pace with, or ideally outpace, rising costs,” says Thomas.
It’s still possible to play catch-up in mid-life
For many of us, it’s not until the mid-stage of our career that we have a clearer understanding of our income, expenses, and future financial goals. If you haven’t started retirement planning by your mid-career, it’s crucial to prioritise it. In Switzerland, for example, you can close existing gaps in your occupational pension provision in a tax-efficient way by making voluntary purchases. The amount of any possible purchase depends, among other factors, on the pension plan provided by your employer.
Another option within the framework of the Swiss social security ‘three-pillar system’ is the restricted pillar 3a, into which you can make tax-efficient contributions to supplement your occupational pension plan. Employees affiliated to an occupational pension fund can pay a maximum of CHF 7,056 each year into a retirement account or a life insurance policy. Those without a pension fund, i.e. the self-employed, can contribute 20% of their earned income each year, up to a maximum of CHF 35,280 (figures valid for 2023).
Navigating the complexity calls for professional advice
Both the voluntary payments into the pension fund and contributions to pillar 3a are generally tax-deductible, providing immediate tax savings, but it’s crucial to evaluate the tax implications beforehand. The tax treatment at the time of withdrawing the funds may vary depending on your tax jurisdiction. In general, it makes sense to consider the maximum purchase capacity within pillar 3a first, and only then consider voluntary purchases into the pension fund, because gaps within pillar 3a cannot be purchased retroactively as of today.
In Switzerland, as in many other countries, the pension system is complex, so it’s important to seek professional advice when considering making these voluntary contributions, navigating the regulations of accumulating funds for your retirement, and striking the right balance between your current and your future financial objectives. “Any decision about whether to make a voluntary contribution to a basic pension or an extra-mandatory pension plan depends both on your situation and the situation on the financial markets at that time, so it’s vital to carry out a careful assessment,” says Manuel. “We evaluate clients’ current financial situation, cash flow, and their medium- and long-term objectives such as home ownership or education expenses.”
Review your plan regularly
Some clients come to Thomas once – often when they realise that they’re late in starting to plan for their retirement – and then happily take away the plan and make the necessary changes. However, he says retirement planning is more effective if you check in regularly with your wealth manager and review whether or not you’re still on track.
“I have clients who check in with me every few years to discuss if they’re sticking closely to the plan we set out for them,” he says. “That’s how it should be – particularly to take into account any life changes you might have gone through, for example in your location, career or personal status.”
This is particularly important during the later stages of your career. As retirement approaches, it’s crucial to fine-tune your plan and make any adjustments to ensure that you’re on track. And if you’ve made diligent contributions and implemented sound investment strategies, you may have accumulated sufficient savings to open up the prospect of early retirement, if that’s a goal for you.
“Taking a proactive approach can help you secure your financial future and enjoy a fulfilling retirement,” says Manuel. “It gives you clarity, control, and confidence, helping you make informed decisions to maximise your financial power during your golden years." However, he cautions that even the best planning is only as good as the execution that follows, and he suggests that readers stay disciplined in their savings and investment approach. “If you make a plan, stick to it!”