Budget planning for retirement: how much will I be able to afford after I retire?

As we age, we give more and more thought to retirement: will we finally be able to afford the vintage car we’ve always wanted? Will we go on a six-month, round-the-world trip? Or will we simply emigrate? One thing is certain – we’ll no longer need to think about the stresses of working. Instead, we’ll be able to spend more time with our grandchildren, engaging in our favourite hobby and enjoying our self-determined life. Finally, we’ll have time. A lot of time. And enough money to maintain our accustomed standard of living and fulfil certain dreams, too? 

What will my expenses be after retirement?

Financial needs are much higher in the initial years after retirement than they are later. You’ll enjoy your new-found freedom to the fullest: You may, for example, travel to distant lands around the world, or make renovations to your home. Variable costs need to be included in your budget, and don’t forget any major purchases you may need to make as well. You may also need to pay for unexpected and costly repairs to your car or dental treatment.

There are also fixed costs you’ll need to pay each month. These include:

• Rent or mortgage payments
• Food and housing
• Health and other insurance
• Clothing
• Means of transportation, such as public transport or a car
• Subscriptions and memberships

There are many unknowns: in our experience, discounting private provisions, AHV and pension fund payments will only make up around 60 percent of your pre-retirement income. But most people need around 80 percent. The higher your income, the greater the gap. The solution is to build your private provisions early on so you will be able to maintain your accustomed standard of living after you retire. The rule of thumb is the earlier, the better.

How can I prepare for retirement?

There are many different ways to prepare for a self-determined life – even after you have retired..

In order to maintain your accustomed standard of living after retirement, having Pillar 3 savings is essential. There are two types of Pillar 3 provisions: tax-qualified provisions (Pillar 3a) and non tax-qualified provisions (Pillar 3b):

• Pillar 3a: If you make contributions to Pillar 3a, the money remains tax qualified and you may not withdraw it until five years before retirement age at the earliest – with a few exceptions. The advantage: You can deduct your Pillar 3a contributions from your taxable income. In addition, the interest is not subject to income or wealth tax.
• Pillar 3b: All assets that are saved voluntarily are counted towards Pillar 3b – no matter whether they are savings accounts, securities or properties that you let.

See here for further information about Pillar 3a and 3b.

• Pension fund purchase: Every month, you – together with your employer – make a contribution to The 2nd pillar. In order to further secure your financial future while also benefiting from tax advantages, you can make voluntary pension fund purchases as well.

See here for further information about voluntary 2nd pillar purchases.

I am 55 years old. Is it too late to start preparing for retirement?

Absolutely not. While the principle of “the earlier, the better” applies for private provisions, there is still enough time to make up a shortfall at this age. The best thing to do is to work with our experts to get an overview of your situation. We would be pleased to help you with your budget planning.

Images: Adobe Stock