Investing in retirement: How to make the best use of your assets

You yourself stop working when you retire, but your money shouldn’t. This is because if you also invest in old age, you benefit from a longer investment period, you can close pension gaps, and secure purchasing power over the long term. In this article, you will learn step by step how to do this.

As you age, your needs change, and so do the requirements for your investments. The right strategy depends on your personal situation: Income, expenses, and goals. We help you to analyze these and use your assets in a targeted manner.

Does it make sense to invest after retiring?

Even during retirement, there are various reasons why it’s worth investing:

• Long life expectancy: At age 65, you still have an investment horizon of 20 to 30 years ahead. If you leave your money in your account without interest during this time, you will lose purchasing power.
• Inflation protection: Even moderate inflation eats up a significant part of purchasing power over 20 years. A return of 3-4% per year can maintain or slightly increase the value through defensive investments such as medium-term bonds or bond funds.
• Flexibility: Invested capital in the form of funds or ETFs remains flexible, can be withdrawn, and passed on to heirs. This is a clear advantage over only a pension from the pension fund.
• Security: A well-thought-out investment strategy gives you the peace of mind that you are financially protected against unforeseen expenses.

What is the best way to invest in old age?

If you want to invest your money for retirement, you should follow these five steps:

1. Check background

Before you invest, you need to have a clear overview.

• Write down your income: Add together your OASI pension, pension fund (annuity or lump sum), Pillar 3a and rental or secondary income
• Calculate fixed costs: Realistically plan your rent, health insurance, taxes, and other recurring expenses
• Determine your desired standard of living: What would you like to afford in old age for family, travel, and hobbies? Define how much money you need per month for this.
• Calculate your pension gap: Deduct your income from your expenses (fixed costs and costs for desired standard of living). The difference is your pension gap. In Switzerland, it often amounts to around 20% of your last gross income. You should close this gap with your personal assets.
• Estimate your investment horizon: At the age of 65, you plan for another 20 to 30 years. Part of the assets can therefore be invested for the long term.

2. Security first: Build up liquidity and buffer

Before you invest, you should build up a financial cushion. This allows you to remain able to act even in turbulent periods on the stock market.

• Create a cash buffer: Keep two or three years’ worth of funds for annual expenses in one account or savings account. In stock market lows, you do not have to sell assets at a loss.
• Defensively cover short-term needs: A defensive, interest-oriented investment strategy is recommended for the first five to ten years. These include medium-term bonds, short-term bonds, and conservative funds

3. Investment strategy in retirement: Splitting the assets

Divide your assets into two parts and adjust the equity component to your age. The following table shows which types of investment fit for which time horizon:

The rule of thumb “100 minus age” states what percentage of your assets should be invested in equities. By age 70, you should have invested only 30% of your assets in equities, the rest in bonds and defensive investments.

Spread risk across different asset classes such as equities, bonds, real estate funds, commodities, as well as across different regions.

In addition, real estate and real estate funds may also be a sensible investment. They protect against inflation and offer stable earnings. However, the capital is not readily available and long-term maintenance costs are payable.

4. Use the three pillars in a targeted manner

Pillars 1 and 2 form the basis for your pension provision, but are often insufficient for your accustomed standard of living. The pension gap calculated in step one can be closed with Pillar 3 or disposable assets.

Pillar 3a offers tax advantages. Payments made during gainful employment can be deducted from taxable income even after the regular retirement age has been reached. Withdrawals are possible at an early stage to finance your own home, if you relocate abroad, when becoming self-employed, or normally from five years before reaching the reference age. The payouts are taxed at a lower rate.

Pillar 3b offers more flexibility than Pillar 3a. These include, for example, bank accounts, securities, investment funds, or life insurance. Unlike Pillar 3a, the payments made are not tax-deductible. In return, you are free to decide when and for what purpose you want to use your assets. By the way, Unlike with Pillar 3b bank solutions, earnings such as interest or dividends are not taxed as income from Pillar 3b pension solutions.

Withdrawal and tax planning plays a decisive role in old age. When and how you withdraw your pension assets can make a big difference to your tax liability.

5. Keeping an eye on risk, taxes and inflation

As you age, your needs change, and hence the requirements for your investment strategy. Please note the following:

• Amend risk profile: Risk capacity and risk tolerance decreases. The investment strategy should be adjusted from dynamic to defensive.
• Tax planning: Lump sum withdrawals from a pension fund and Pillar 3a are taxed separately but progressively. Stagger withdrawals over several years. This reduces the tax burden.
• Don’t forget inflation: If you put your money in a savings account, you lose purchasing power over the long term due to inflation. Even a small equity and fund allocation in the portfolio can secure real purchasing power.

Frequently asked questions about investing in old age