Early retirement in Switzerland: what do you need to know?
Do you dream of an early retirement? If so, you should take care of your finances in good time. We explain how to prepare for early retirement.
12.04.2018
iStock / Jacob Ammentorp Lund
1. What are the financial consequences of early retirement?
The normal retirement age in Switzerland is 65 for both men and women. For women, there are transitional provisions in place until 2028.
Retiring at the age of 65 can often lead to pension gaps. If you want to retire earlier, you have to be well prepared.
Fewer contribution years, longer benefits period
If you take early retirement, not only are you no longer receiving your previous income, you are also reducing the number of years you will make contributions to OASI and your occupational pension. That’s why your pension will be significantly lower if you retire early than if you retire at a normal age.
The OASI pension, for example, is reduced by 6.8% for each year of early retirement. What’s more, your savings will need to last longer if you retire early.
OASI contributions are still due
Furthermore, you have to continue to pay OASI contributions until you reach the normal retirement age . Further information on this topic is available in the information sheet provided by the first pillar information centre.
Lower reduction rate for women in the transitional generation
Women born between 1961 and 1969 belong to the transitional generation under the AHV 21 reform and benefit from a lower reduction rate. These reductions are valid for life. The lower the average pre-retirement income, the smaller the reduction.
Reduction rates according to average annual income
Valid from 1.1.2025 for women born between 1961 and 1969
| Early withdrawal |
Up to CHF 58,800 | CHF 58,801–73,500 | **from CHF 73,501 |
|---|---|---|---|
| 1 year | 0.0% | 2.5% | 3.5% |
| 2 years | 2.0% | 4.5% | 6.5% |
| 3 years | 3.0% | 6.5% | 10.5% |
Table: Comparis
2. When should I start planning for early retirement?
The sooner, the better. You should review your asset and income situation at the latest at the age of about 50. Compare the expected income (especially OASI pension and occupational pension income) with estimated expenses for when you retire.
To this end, it is best to create a budget for the retirement period. Make sure to include changes in the cost of living in this budget, such as:
No longer having to commute to work
A smaller apartment
Higher travel and health costs
How much savings do I need?
Many people underestimate the need for a financial cushion for taking early retirement. Will your outgoings after taking retirement, for example, be 2,000 francs higher than your income every month? If so, with a return (e.g. interest) of 1% and a life expectancy after retirement of 20 years, you will need around 430,000 francs extra. For many people, saving such a large amount is not a realistic proposition.
3. How can I close pension gaps?
Is there a pension shortfall between your estimated outgoings and income? There are different ways to close such gaps:
Voluntary contribution to the occupational pension fund
One way to increase your retirement savings is voluntary contributions to the occupational pension fund. You can deduct these deposits from your taxable income. There are also no taxes on the return generated during the saving period.
It is best to spread the deposits over several years. You can start drawing your occupational pension assets at the age of 58 at the earliest. You have the choice between having them paid out as a lump sum or an annuity. Both options have their pros and cons.
Important: early retirees must expect a lower conversion rate. The conversion rate is the basis for calculating your pillar 2 pension . Contact your occupational pension fund to find out exactly how much pension you can expect to receive at various retirement ages.
Pillar 3a: save on pensions and taxes
In order to close pension gaps from OASI and occupational pension funds, you can invest in pillar 3a. The disadvantage of this is that you can only make an early withdrawal under very specific conditions. The advantage is that you can deduct money paid into pillar 3a from your taxable income.
Life insurance is also a type of private pension. You can take out such policies in both pillar 3a and pillar 3b.
Free accumulation of wealth (pillar 3b)
Alternatively or additionally, you can also build up free assets. Depending on the interest rate environment, savings accounts, securities or a tax-advantaged one-time deposit with an insurance company are just some examples of solutions suitable for this purpose.
Set a monthly savings amount as early as possible, make deposits regularly and do not touch this balance if possible. If you have saved enough assets, you don’t need to choose OASI, the occupational pension or pillar 3a to finance your early retirement.
4. What if I don't have enough money to take early retirement?
If you have not made sufficient provision for early retirement, you will need to replace the lack of income. Some employers alleviate financial losses through bridging pensions or severance pay. You should ask your employer about this in good time.
Depending on the interest rate environment, you can also fill any financial gaps by refinancing or increasing your mortgage. However, the loan-to-value ratio must be no greater than 65% and not more than one third of the income you will receive in retirement.
The alternative – semi-retirement
Even with careful planning and the greatest of discipline, it is not always possible to save the necessary financial buffer for a carefree early retirement. Partial retirement is a more realistic option even for middle-income people. It can be done either in one or more steps.
The advantages:
Even half an income is usually still enough to pay OASI contributions.
The expensive OASI early withdrawal is usually unnecessary, as earned income and the occupational pension are sufficient for living costs.
Semi-retired people can reduce their own OASI contributions and release their life partner from the obligation to pay contributions.
Another option is to start working part-time earlier and then remain in the workforce beyond the age of 65. Several companies in Switzerland promote this form of part-time employment. Check with your employer in good time and get advice if you have any questions.
