Retirement: take it earlier or work longer?

What is your personal plan? Do you want to retire early? Would you like to retire in stages? Or are you planning to work longer because you enjoy your work? Whichever option you choose, there are a few points to consider. Experts recommend that you start thinking about this between the ages of 50 and 60, so you have time to put everything into place carefully.

Retirement timing

It is important to know that the timing of your retirement has an impact on the benefits you receive from the 1st pillar (AHV/AVS or state pension) and the 2nd pillar (occupational pension).

AHV/AVS pension

You can draw your 1st pillar pension up to two years earlier or defer it for up to five years. Women from the transitional generation can draw their pension three years earlier. Early withdrawal results in a lifelong reduction in your pension, while deferring retirement leads to a lifelong increase.

You remain subject to AHV/AVS contributions for the duration of the early withdrawal. If you have already reached the reference age, you will also be required to pay contributions if you defer your AHV/AVS pension. You are free to decide whether to pay AHV/AVS contributions on income in excess of CHF 16 800 (allowance) only or whether to pay them on your entire income. If you pay contributions on your entire income, you have the advantage of increasing your AHV/AVS pension (up to a maximum of CHF 2450).

Note: In force as of 2024, the AHV/AVS 21 reform involves some important changes. Here you will find a summary of the key information on the AHV/AVS 21 reform.

Pension funds

The earliest you can draw 2nd pillar (pension fund) benefits is at the age of 58 and at the latest when you turn 70. If you take early retirement, your pension is far lower because you have a smaller pension pot earning interest and the conversion rate is lower due to the longer period for which benefits are paid. If you retire after your 65th birthday – i.e. postpone your retirement – benefits will increase.

Early retirement

If you are planning to retire early, you should take a close look at your financial situation and draw up a budget. This will enable you to spot whether early retirement would result in an income shortfall.
If a shortfall looks likely, you can take steps to cover it. Your pension certificate shows whether you have already reached the maximum pension entitlement. If not, you can make voluntary contributions to the 2nd pillar. You can also use the 3rd pillar to make up any pension shortfalls.

Here’s what to do:

• Check the pension fund regulations to see what the earliest possible retirement age is.
• Calculate the reduction in benefits from the 1st pillar. 
• Check what pension you will receive from the 2nd pillar.
• Explore your options for making up any shortfall.
• Calculate the additional savings required to cover your fixed and variable costs.
• Ask your pension fund by when you need to register for early retirement and request the lump-sum withdrawal option (instead of a monthly pension).

Normal retirement

Occupational pension provision (2nd pillar) ensures a secure income in old age. You are also insured against disability and death. As a rule, the pensions from the 1st pillar (AHV/AVS) and the 2nd pillar (pension fund) cover about 60% of your last income. The resulting shortfall can be reduced by contributing to a private pension plan. In practice, 80–90% of your last income is used as the benchmark for what you will need in retirement.

What to consider:

• When you draw your 2nd pillar retirement benefits, you can choose between lump-sum payments and a lifelong pension. A combination of the two is also possible.
• Before you retire, you can make voluntary payments into the 2nd and 3rd pillars to cover any financial gaps – and reduce your tax liability. Please note that additional contributions made less than three years prior to a lump-sum withdrawal at retirement are not tax-deductible.

Deferred retirement

More and more people in Switzerland continue to work after reaching the reference age. If you decide to work longer, you can defer drawing your retirement benefits. Retirement benefits are then only paid out when you stop working – but at the age of 70 at the latest. The longer the deferral period, the higher your 1st and 2nd pillar benefits.

What to consider:

• Contact your employer and your pension fund.
   

Partial retirement

From the age of 58, you have the option of retiring in stages. This requires a significant reduction in your working hours. For example, if you only work 50%, you can draw 50% of your pension. Most pension funds allow you to choose between a lump-sum payment and a monthly pension each time you reduce your hours.
You can also draw your 1st pillar pension starting from any month between the ages of 63 and 70. You should bear in mind that you are still obliged to make AHV/AVS contributions until you reach the reference age (or stop working after 65).

What to consider:

• If you are considering partial retirement, you should contact your employer and your pension fund.
• Inform the social security administration office that you wish to draw your pension.
• For tax reasons, you should not reduce your working hours more than twice.

Everyone has different needs and goals in life – this is also true of retirement and when to take it. If you plan carefully, you can make a self-determined choice about your financial future.