What do I need to bear in mind if I retire early?

Young people all have very different ideas of what life in retirement entails, though the majority are confident they will enjoy retirement – and a long one at that. After all, life expectancy is going up and up as the The link will open in a new window statistics (in German) show. Politicians have also recognized this, so they have tried to adjust funding for things like old-age and surviving dependants insurance (AHV) and pension funds to the increasing life expectancy. Anyone who wants to enjoy good health and truly active years once they retire for as long as possible shouldn’t really leave it too long to start thinking about early retirement, especially given that it is not for everyone.

Almost one in two people enjoys an early retirement

You certainly aren’t the only one considering early retirement:

According to the Swiss Federal Statistical Office, nearly half of men and women in Switzerland take out savings from their private pension and their work pension early on.

• The majority, however, do not take out their AHV pension until normal retirement age.
• Only 9 percent of men and women take out their AHV pension before they turn 65 and 64 respectively.
• Those that make up this 9 percent benefit from a statutory advanced withdrawal, specifically staggered AHV withdrawal, though this entails making certain compromises. A person can take out their pension from the first pillar (i.e. state AHV) a year earlier or even two. Should they withdraw their AHV pension a year in advance, their pension is reduced by 6.8 percent for the duration of their retirement, and this figure rises to 13.6 percent  if they do this two years in advance.

So it is a good idea to weigh things up and make some calculations if you do decide to retire before statutory AHV age. Specifically, you should consider capital withdrawal options from your mandatory (i.e. AHV) pension and your work pension (pension fund), and assets from your private pension.

We do not always retire early out of choice

Unfortunately, early retirement is not always voluntary, indeed it can occasionally happen before the statutory retirement age if a person is made redundant. This comes with certain challenges. On the one hand, the person loses income and savings opportunities, as well as retirement benefits. On the other hand, capital retirement sums end up being lower because the person has less time to accumulate them. If they are not employed, then a person who retires early will also no longer be able to pay into pillar 3a.

Want to retire up to seven/eight years prior to statutory retirement age?

The big question that comes up when you want to retire early is how to cover your income gaps until you reach your pension age. After all, you want to be able to enjoy your years as an early retiree - and that costs money. So what are your options?

• Anticipated withdrawal of employee benefits: The minimum age for making an advanced work pension withdrawal from pillar 2 is currently 58. Depending on the rules of the pension fund in question, sometimes an advanced withdrawal is either not possible at all or only under certain conditions. If, like the majority of people in Switzerland, you only take out your work pension early, you ought to check whether your pension fund provides a supplementary pension until you reach statutory AHV retirement age. The employer often takes responsibility for this “bridging pension”. It is a very good idea to ask your HR department.
• Anticipated withdrawal of old-age and surviving dependants insurance: You can already draw your AHV pension one to two years before the regular retirement age. Bear in mind, however, that in the event of an advanced withdrawal, your old-age AHV pension will be reduced for life.
• Pillar 3a: You can withdraw your pillar 3a or retirement fund up to five years before you reach regular retirement age. For more on retirement funds and how they can still be worthwhile at 50, see our guide "What is the right retirement fund for your circumstances? It is well worth comparing them!".
• Life insurance and other savings: If you are expecting to receive a payout from your life insurance policy during your early retirement, you can also use this capital to help you during the time until your regular retirement. Of course, you can use other substantial assets to bridge the gap – but calculate exactly how much you need to do so

So, the question of early retirement depends largely on how a person’s financial situation has evolved throughout their working life, and whether the benefits they expect to gain from their AHV and their pension fund will set them up for a comfortable retirement.

If I do plan to retire early, what do I absolutely have to bear in mind?

Given that we can expect statutory retirement age to go up in the coming years, the topic of early retirement may become increasingly important. We are going to show you what you need to bear in mind here:

• Anyone looking to retire early will have to start financial planning early on. You ought to start planning very carefully by the time you turn 50 at the very latest, seeing as you can still make important financial decisions at this stage.
• Start investing in a private pension early on and make the most of tax benefits. By doing this, you will not have to pay income tax or wealth tax on the capital you have invested until you withdraw funds from pillar 3a. This will also be paid out to you separately from the rest of your income at a fixed rate, depending on the canton or the municipality.
• Open several pillar 3a accounts if necessary seeing as you will have to pay taxes when you withdraw funds. The higher the sum, the more taxes you may have to pay. By staggering the withdrawals over the space of several years, you can save on taxes. When you withdraw your retirement funds, always be sure to check the tax requirements of your canton of residence.
• A retirement savings account is the first step in the right direction. However, it is also worth considering setting up a retirement fund. You decide what potential returns you want.
• A capital-growth life insurance plan can also potentially tide you over until you officially retire. Bear in mind, however, that the insurance benefits paid out need to tally with your own retirement planning.

How should I proceed if I'm considering early retirement?

It is particularly important to find out early on whether and when early retirement might be realistic for you. Clarify the following points:

• What is the earliest possible time for a lump-sum withdrawal? You will find this information in your pension fund rules.
• What is the financial scope of the benefit reductions in the 1st and 2nd pillars? Your advisor will help you calculate this amount.
• What bridging options are available? Your advisor can also help you with this, as can your current employer's HR department.
• By when do you have to register your early retirement and lump-sum withdrawal with your pension fund? Your pension fund can help you with this.
• What is your notice period and when do you want/need to submit notice to your employer? Is there, at best, an option for partial retirement, i.e. a gradual departure from working life?
• How much do you need to save to cover your living expenses after retirement so you won't have to pinch every penny? Calculate a detailed budget with all fixed and variable costs for your living expenses after retirement, but also include reserves for unforeseen events, major purchases, longer vacations or renovations to your home.

It’s worth planning your retirement early.

If you want to retire early, you should start planning early too. If you have already made up your mind that you do not want to work until statutory retirement age, then follow the tips above however old you are. If you are close to officially retiring, have a look at the article “I’m drawing close to retirement – what do I need to know?”. Whatever you decide, these tips will help you to one day enjoy what the young people in the video are already dreaming about today.