8 Common Retirement Planning Mistakes

If you take care of your retirement planning early and properly, you won't have to worry about unpleasant surprises in retirement. Avoiding these common retirement planning mistakes can help you remain financially independent and enjoy more flexibility in your golden years.

1. Putting off private retirement saving

Many people rely on their Old Age and Survivor’s Insurance (OASI) and occupational pension fund (BVG) benefits to provide for them in their old age. But unless you want to spend your older years living on a fraction of your current income, private retirement savings are essential.

The Swiss pillar 3a providence category rewards you for saving for retirement by letting you deduct the money you save from your taxable income. If you are willing to take on some amount of risk, it is worth noting that the stock market has historically delivered higher returns than savings accounts for long-term investments. You can invest pillar 3a savings using pillar 3a retirement funds and pillar 3a asset management services.

Use the pillar 3a retirement account comparison and the retirement fund comparison to find the best solutions for your private retirement savings.

2. Not closing pension fund gaps

Gaps in your OASI benefits can occur when, for example, neither you nor your employer pay OASI contributions for a time. These gaps result in your receiving a lower lifelong OASI pension than you would otherwise. You can only pay the missing contributions in arrears up to 5 years after they occur, so it is worth requesting information about possible gaps from the social security office on a recurring basis. This can be done online.

Closing gaps in your occupational pension fund (BVG) is also worth considering. Gaps in your pension fund benefits occur when your salary increases. In this case, you can make voluntary contributions to close the gap between your existing pension benefits based on your previous income and the amount of benefits you would have had you earned your current income from the beginning. Ask your employer’s pension fund for information about possible gaps in your pension benefits.

3. Not paying OASI contributions while living abroad

Many residents stop contributing to the OASI when they leave Switzerland and take up residence abroad, and this results in their receiving much lower OASI pensions. Many departing residents do not know that they may be able to continue to fund their OASI benefits after moving abroad. The prime requisites are:

• You are either a Swiss citizen or the citizen of an EFTA or EU member country.
• You have paid OASI contributions for at least 5 consecutive years prior to leaving Switzerland.
• You are moving to a country outside of EFTA or the EU.

You can sign up for voluntary OASI contributions with the Central Compensation Office. Note that if you are employed while living abroad, you will have to pay the full contributions yourself (in Switzerland your employer pays half). If you are not employed, you pay the same minimum annual OASI contribution which you would pay in Switzerland.

4. Not collecting your second pillar assets

When you leave an employer, the onus rests on you to order a transfer of benefits from your former employer’s pension fund to your new occupational pension fund or to a vested benefits foundation (if you are not employed). Many employees fail to claim their benefits when they leave an employer. You can find information on how to reclaim your benefits in this guide.

5. Sticking with the wrong 3a and vested benefits solutions

Many people open vested benefits or pillar 3a accounts with their go-to bank. But in the worst case, doing this can cost you a huge amount of money. The interest rates of retirement accounts are generally low, but some banks pay many times more interest than others. Comparing vested benefits accounts and pillar 3a accounts is key. Make sure to use accounts which do not charge you a fee when you migrate to a different bank. You can easily find fee-free accounts using the “Results without any fees” filter on the comparison results pages.

Historically, retirement funds have performed enormously better than retirement accounts. While investing in the stock market has its risks, the risk decreases the longer you hold your investments. If your retirement savings will be tied up in the pillar 3a or vested benefits for at least 10 years, investing them in a retirement fund or with a retirement asset management solution is worth considering. You can compare Swiss retirement funds here.

Many Swiss insurance companies offer permanent life insurance policies for retirement saving. These use equity in life insurance policies as a retirement saving vehicle, and are available for vested benefits, the pillar 3a and non-privileged retirement savings (pillar 3b). In most cases, the costs are relatively high. Surrendering your policy (terminating the insurance before you reach retirement age) generally results in major losses, which makes it difficult to more favorable retirement-saving solutions as they come out. Using retirement accounts, funds or asset management solutions gives you more flexibility because you can move your savings to other solutions on short notice without losses.

6. Opening just one pillar 3a retirement account or vested benefits account

It is not possible to withdraw only part of the money held in a 3a or vested benefits account – you have to cash out the full account in one go. The money you cash out is taxable. Cashing out a large amount of money in one tax year could bump you up into higher capital withdrawal tax brackets. This can result in your losing a large part of your hard-saved retirement assets to taxes. You can divide your savings between multiple 3a accounts and up to 2 vested benefits accounts. This lets you cash them out in turn over several years to avoid too large an influx of income in any given tax year.

7. Getting pensions earlier than necessary

Not everyone becomes a centenarian, but on average people live longer today than they did in times past. If you love your job and want to continue working anyways, consider holding off on receiving your OASI and pension fund pensions for as long as possible. As long as you remain employed, you can put off receiving your pensions until 5 years after standard OASI retirement age. You can also hold savings in the pillar 3a during that time. Your pension increases significantly every year that you put it off. You can calculate the difference using the delayed OASI pension calculator.

8. Planning for a pension instead of a lump sum

Many Swiss occupational pension funds give you the option of cashing out your benefits as a lump sum instead of receiving a lifelong pension. While a lifelong pension may seem like the better choice, that is not always the case. The age which you expect to live to is the deciding factor. If you are in good health and your family has a history of longevity, then planning for a pension may be the better option. Otherwise, planning for a lump-sum withdrawal and subsequent investment of your benefits may be a better financial move. You can easily calculate the break-even point using the pension vs. lump-sum calculator.

More on this topic:
Compare Swiss retirement funds now
Compare Swiss pillar 3a accounts now
Compare Swiss vested benefits accounts now
Tips for choosing the right retirement fund
Pillar 2 and pillar 3a asset management services explained