Financial Planning Juli – swisspartners – The art of finance

Early planning is the key to a good retirement

It is astonishing to discover just how little young adults know about the importance and benefits of pension planning. In the majority of cases, the explanation is simple: many people lack the knowledge, interest or financial means to save for their retirement. There is a growing tendency amongst the younger generations to live “in the moment”. The money that they earn themselves or obtain by taking out loans is spent on holidays, expensive cars (leasing), luxury goods or other amenities.

The main question is how these generations will finance their lifestyles when they reach retirement age. How can they maintain the same standard of living given the problems that have already been identified in relation to the old-age and survivor’s pensions system (AHV) in future?

Many people assume that they are adequately covered by the obligatory pillars 1 and 2 (AHV and pension fund) and will be able to maintain their usual standard of living, which is often beyond their means. Unfortunately, this is an illusion as more free time automatically means more time to spend money, which inevitably leads to a dead end.

To avoid falling into this trap, it is important to look carefully at the subject of retirement provision and its advantages well in advance to maximise profit during the years leading up to pensionable age. In order to reach this “maximum”, it is advisable to seek assistance from an independent financial service provider and discuss the various options.

Banks, insurance companies and brokers recognised the potential and earnings opportunities some time ago and have developed various products specifically for this purpose.

The most common way of saving for retirement is the restricted pension scheme, known as pillar 3a, whereby deposits are saved in a bank savings account or via a life insurance policy. In the latter case, it is important to obtain as much information as possible given the huge discrepancies in the returns offered by various providers for the same product, as making the wrong choice could diminish your income. This is because commissions for the seller or advisor can be high.

The savings that are paid in during the term are tax deductible, which is the first advantage. The second advantage is that the pension capital grows over time due to interest and the compound interest effect. However, the disadvantage worth considering is that the funds are tied up until you reach retirement age and cannot be accessed beforehand in an emergency.

Another option for retirement savings is to purchase additional benefits for your pension fund. The annual savings amount can be deducted from your taxable income, while the income from interest and compound interest is tax-free. Another huge advantage is that some or all of the pension pot can be drawn on or pledged to buy a home.

If we have piqued your interest in a personal pension plan that is tailored to your specific needs, we would be happy to assist you as a neutral and independent partner.

Mauro De Luigi