Planning for retirement: the 6 key questions

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Planning for retirement: the 6 key questions

Gilles Panchard - Financial Planner<br/>LO Patrimonia SA<br/>Lombard Odier Group

Gilles Panchard

Financial Planner
LO Patrimonia SA
Lombard Odier Group
Thomas Wyss - Head Wealth Planning <br/>Lombard Odier & Co AG Zürich

Thomas Wyss

Head Wealth Planning
Lombard Odier & Co AG Zürich

There is no ideal age to plan your retirement. However, you do need to have a financial plan from the age of 50 so that you have enough time to take measures to optimise your tax, diversify and grow your assets, calculate your outstanding debt at retirement, mitigate the reduction in your income and implement investment strategies that reflect your future financial goals. You will also want to ensure you can preserve your assets for the long term and pass them on to the next generation.

There is no ideal age to plan your retirement

Good retirement planning begins with the following questions


What is my current financial status?

The first step is to review your current financial situation, taking into account all your property, movable assets, bank accounts and retirement savings, plus all your outstanding debts. You would also need to draw up a budget for the present and the future, based on your income. This will highlight any gaps in your retirement income. You can then consider measures to remedy these gaps.

…review your current financial situation, taking into account all your property, movable assets, bank accounts and retirement savings, plus all your outstanding debts

How can I optimise my assets while I am still working?

If you plan your retirement well in advance, you will have time to take measures to reduce your taxes and build up additional, diversified assets for when you stop paid work.

…the Swiss government has established tax incentives to encourage people to save for retirement, notably with respect to Pillar 2 and tied Pillar 3a accounts

To this end, the Swiss government has established tax incentives to encourage people to save for retirement, notably with respect to Pillar 2 and tied Pillar 3a accounts. Pillar 2 contributions are tax deductible for those who are insured. It is also worth noting that assets held in occupational pension plans are exempt from income and wealth tax until they are paid out. The strategy of buying back contribution years can be useful: pension buybacks are usually tax deductible. In addition to the tax advantages, buybacks can allow you to improve your retirement benefits and diversify your assets. Furthermore, because of the tax savings achieved through buybacks, the after-tax performance of assets invested in a pension fund is significantly better than for a traditional investment portfolio. In fact, the tax you pay when you draw your retirement capital is much lower than the savings you realise at the time of the buyback. In addition, your capital and returns are exempt from tax while they are held in an occupational pension fund.

Before investing in your pension fund, you should look carefully at the quality of the fund management and the death and invalidity cover. Additionally, you must allow at least three years between the buyback and withdrawing the capital, or the transaction will be challenged by the revenue authorities.

What options do I have for withdrawing my Pillar 2 retirement assets?

We highly recommend that you meticulously plan how you will withdraw your retirement assets from your pension fund. The first step is to find out the permitted lump-sum withdrawal amount under the pension fund rules, the notice period required for each option, and whether your decision is final. The next step is to produce a financial plan modelling the different withdrawal options you are considering. This will illustrate how your income, spending – including tax – and wealth will change over time. The analysis will establish which solution offers the best combination of financial security, net returns and access to financial assets.

We highly recommend that you meticulously plan how you will withdraw your retirement assets from your pension fund

Emotional factors should also be taken into account. As a future retiree, you need to be happy with your decisions and be able to live day-to-day without worrying about how financial market performance might affect your retirement capital. We highly recommend taking all retirement decisions in consultation with your spouse or partner: your spouse will have to give written consent before you can withdraw part or all of your pension fund capital.


When should I take a lump sum from my occupational pension and 3a retirement account?

Lump-sum benefits paid out from Pillars 2 and 3a are taxed separately from other incomes. The incremental tax rates are set at an attractive low level. Lump-sum benefits from Pillar 2 and 3 accounts due in the same calendar year are considered together when tax is calculated. The same combined calculation is used for benefits withdrawn in the same tax year by a married couple or civil partners. It is therefore essential to spread lump-sum benefits from Pillar 2 and 3 retirement accounts over several tax years so as to reduce tax.

It is therefore essential to spread lump-sum benefits from Pillar 2 and 3 retirement accounts over several tax years so as to reduce tax

How much debt should I have when I retire?

Should I pay off my mortgage? This is a common question as people approach retirement age. The answer should not focus solely on the tax implications. Just as you consider the loan terms and the ideal level of debt when you buy a house, your analysis should take into account your investor profile, how your cash is invested, interest rates, the marginal tax rate and your future plans. In short, cash investments need to generate more than the cost of your loans after tax.

…cash investments need to generate more than the cost of your loans after tax

If the return from your investments is greater than your net cost of borrowing, you will be better off keeping your loan. This calculation is particularly important at the time of retirement, given that it tends to be harder to increase borrowing at this stage of life. Consequently, cash flow management is crucial. The amount of debt will also be influenced by your personal and family circumstances, your living costs and your level of debt aversion. There is no standard solution: a comprehensive analysis of your situation will be needed as each mortgage interest payment matures.


What investment strategy should I choose? How can I manage my cash flow requirements?

While still working, people with a conventional managed portfolio and a supplementary pension plan should take a consolidated approach to their financial assets. A consolidated approach focused on tax-efficient management should help you to improve after-tax performance by selecting assets and allocating them to different portfolios, bearing in mind the tax implications.

…we recommend structuring your financial assets to reflect different phases of consumption needs, while maintaining an overview of all your bank accounts

The question of how best to manage cash flow is inevitable at the time of retirement. You will need to determine your short-, medium- and long-term cash requirements. Any investment strategy should reflect your needs, your personal life goals and your risk profile. Consequently, we recommend structuring your financial assets to reflect different phases of consumption needs, while maintaining an overview of all your bank accounts.

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Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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