Budget planning for retirement: Early planning pays off

How much money do I need for retirement? If you ask yourself this question early on, it will pay off when you retire – and not only financially. 

Your income from your job will be gone. But so will all the responsibilities that come with working life. Anyone who – or especially who – wants to live a carefree life as a retiree and fulfill long-cherished dreams should start planning their retirement budget early.

Even if retirement still seems a long way off at age 50 or 55: The years leading up to it are well spent if you don’t just dream about retirement – but also set the course to make those dreams a reality.

How do you make your dreams come true after retirement?

Money is not everything, not even in old age. What are you particularly looking forward to when you retire? Spending time with friends, children or grandchildren? Traveling, maybe even moving abroad? Motorcycling, skiing, trying out new hobbies? Or just enjoying your life in peace?

Whatever your dreams may be, it’s easier to realize and live them if you’ve prepared your retirement well, at least financially. And in this case, planning well means early and comprehensively. A key aspect of retirement planning is not only an overview and optimization of your pension provision, but also budget planning.

Where might costs rise in old age?

Even though many expenses disappear after retirement, some costs increase noticeably over the years. You should expect higher costs especially in the following three areas:

• Healthcare costs: On average, these costs double compared to when you are working. This includes more doctor visits, medications, and medical aids such as glasses or hearing aids, as well as health insurance premiums, the excess, deductibles, and any supplemental insurance.
• Care costs: If you need assistance from Spitex or have to stay in a nursing home, it can get expensive. A place in a retirement or nursing home often costs more than CHF 10,000 per month, a significant portion of which you must pay yourself.
• Leisure and travel: Especially in the first few years after retirement, many people want to travel more and take up new hobbies. You should set aside a sufficient budget for this.

In which areas are costs more likely to decrease?

At the same time, some expenses disappear entirely or decrease when you retire. The following areas, in particular, provide financial relief:

• Work-related expenses: Costs for commuting or work clothes are eliminated, as are lunches out and public transportation passes.
• Savings contributions: Monthly contributions to your pension fund and payments into Pillar 3a cease as soon as you are no longer employed.
• Housing and family: Housing costs often become more affordable, for example, because the children have moved out or because the mortgage has been paid down enough by the time you retire that the payments remain manageable.

Taxes: They usually decrease due to lower pension income, though not as sharply as expected, because deductions such as those for Pillar 3a or business expenses are no longer applicable.

How do you plan your retirement budget step by step?

Planning a retirement budget isn't rocket science, but it does take some time, knowledge – and honesty. After all, even the best budget is useless if you don’t have an accurate picture of your income and expenses or if you deliberately sugarcoat them. “It’ll work out somehow” isn’t a good motto in this case. The whole process becomes most tangible when you work out your retirement budget using a concrete example: First, all your income; then, all your expenses.

Step 1: List your income

When calculating your income, there are several sources of income for employees: Pillar 1 (OASI), Pillar 2 (pension fund) either as an annuity or as a lump sum, Pillar 3 consists of pensions with restrictions (Pillar 3a) and flexible pensions (Pillar 3b) with securities, residential property or savings, if available.

All these sources of income together must be enough to sustain your life after retirement. Payments from Pillars 1 and 2 generally account for around 60 percent of your final income; all other needs must be covered by your Pillar 3, private pension provision. The good news: As a rule, 80 percent of your final income is sufficient for the period after retirement. To gain an overview of your pension provision on your own, it’s worth taking a look at our pensions portal or your pension fund statement.

Step 2: List expenses

This is where honesty comes in. Because if you don’t honestly state your real expenses, you’ll quickly notice if you have a lot more money in the future than months you need to budget for. List every single expense – costs incurred every month, every year, or even just every few years. Don’t skip any!

Food, insurance premiums, rent or mortgage interest, gas or public transportation – that’s what you usually think about, but what about your health insurance deductible? What about your vacation budget, especially if you want to travel more in your old age? Gifts for your children and grandchildren? The new e-bike or putting aside savings for the lawnmower, washing machine or the furniture that will soon have to be replaced? Paying off your mortgage – especially to ensure you can afford it in retirement? You should also budget for these expenses after retirement.

Once you have drawn up the breakdown of income and expenses in retirement, you are already on the home stretch. All your expenses are now offset against your income and you can immediately see whether you can afford to sit back and enjoy your retirement.

We explain what you need to bear in mind when calculating the costs in the article “Assets in Switzerland by age: How much money should I have?" We have summarized everything else you should keep in mind when planning your retirement in our Planning your retirement checklist.

Would you like to specifically improve your retirement budget?

Don’t worry – if you’ve dealt with your retirement planning in good time, you’ll have enough time to optimize your retirement budget as much as possible. There are several options for this as well: 

• Close pension gaps: Your pension advisor can help you here. Together, you can identify pension gaps and find a solution for closing them. For example, by purchasing pension fund benefits or paying into Pillar 3a. 
• Increase income: Do you work part-time but do not have enough savings to be able to cover your living expenses from your pension fund in the future? Then it can be worthwhile to work more, possibly with different employers. This not only benefits your first savings, but also your Pillars 1 and 2. 
• Deferring retirement: You don’t feel financially and mentally ready for retirement? Then you can keep working in Switzerland for up to five years beyond the regular retirement age and save more – of course in consultation with your employer.

Why should you plan for retirement early?

You should plan for retirement early so that you can actively shape your future, especially if you only have 10 or 15 years left until retirement. When it comes to pension planning, thinking about tomorrow is always good advice. Even if gathering receipts, filling out Excel spreadsheets, and exercising a bit of discipline can be tedious, the effort is worth it: By planning for retirement early, you’re setting the course today so you can enjoy your retirement later on.