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I am kind of tired of the rat race and would like to retire as early as possible and just enjoy life for a change. I have worked for a Swiss company for most of my career. What I need to know is this: How much will early retirement cost me and how should I go about handling the legal side of retiring early?
Hi there,
Pillar 1a: You can only claim your social security pension from the age of 62 (for women) or 63 (for men) - 2 years before you reach legal retirement age. Retiring 2 years early results in a 13.6% reduction in the monthly social security pension you receive. Retiring 1 year early cuts your pension by 6.8%.
Pillar 2a: From a legal standpoint, you can theoretically claim a pension from an occupational pension fund (2a) at as young as 58 years old (7 years before reaching legal retirement age. However, each pension fund has its own policies governing early retirement, and in practice pension funds can have tighter age restrictions.
It is also up to each pension fund to decide how they penalize your pension after early retirement. Some pension funds provide a special supplementary pension to bridge the gap between early retirement and legal retirement age. This may be financed by your contributions - in which case your pension may not be heavily affected - or by your pension fund savings (which can lead to major reductions in your pension).
Some pension funds allow you to make voluntary contributions in order to close gaps and increase your pension, and doing this ahead of retiring can be a good idea. Just note that voluntary contributions must remain in your pension fund for at least 3 years to be eligible for tax-preferred withdrawal. A good first step would be to ask your pension fund about their early retirement policy.
Pillar 3a: These assets can be withdrawn up to 5 years ahead of legal retirement age and can help fund your retirement until you begin receiving 1a and 2a retirement assets. Distributing your asset between several accounts at different banks can help you space out asset withdrawals to avoid being bumped into higher tax brackets. You can compare 3a savings accounts here.
Pillar 3b: Private retirement funds and life insurance policies generally provide more flexibility regarding how much you can contribute. If you plan to retire early, increasing your contributions to private retirement funds can help you receive a higher pension or cash benefit when you retire. Each private retirement fund or insurance policy has its own limitations on when you can withdraw your assets or begin receiving annuities. Check your contract or ask your insurer or retirement fund manager abou their regulations with regards to early withdrawal.
Taxes: Withdrawing tax-preferred retirement savings ahead of retirement age can lead to your paying more taxes than you would pay if you waited to withdraw until after you reached retirement age. Because this depends on what kinds of retirement savings you have, getting consultation from a tax advisor
Best regards from Moneyguru
More on this topic:
3a retirement account comparison
Vested benefits account comparison
