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. 

The income from your job is gone. But also all the obligations that your work life entails. If you intend to live carefree when you retire and live out all those dreams you’ve held onto, you should start planning for your retirement early on. Especially with budget planning.

Even if retiring at 50 or 55 still seems a long way off, the years until then need to be well invested – not only dreaming about your retired life – but also setting the course to make these dreams come true. 

Financial security and a fulfilling 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.

Two steps to your retirement budget

Planning a budget is not magic, but it does take some time, knowledge – and honesty. After all, the best budget is useless if you don’t know exactly what your income and expenses are or if your assessments don’t match your actual situation. “It will all somehow work out” is not a good motto in this case. 

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? Mortgage payments – especially to guarantee you can afford them in your old age? You should also plan a budget for this.

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. 

Your budget looks bleak? Here’s what you can do

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. 

“Planning early” is not an empty phrase 

Are you 50 or older? Then you will hear it over and over again from everyone: “Plan your retirement early!” Thinking about the future is always good advice when it comes to pensions – especially if retirement is “only” 10 or 15 years away. You can still actively shape your future. 

As a ray of hope between the laborious gathering of documents, filling in Excel spreadsheets and a little discipline, it helps to keep in mind: With early retirement planning, you are now setting the course to be able to enjoy your own retirement later.