Financial Freedom in Old Age: How to Plan Your Capital Withdrawal, Pension, and Future Correctly

Retirement is one of the most important steps in life. Many people look forward to more free time, travel, or simply more peace, but at the same time, many questions arise: Will my savings be enough to maintain my standard of living? Should I receive my pension fund as an annuity or as a lump sum? What taxes and costs will I face after retirement? And how can I fulfill bigger dreams like a world trip or buying a motorhome without getting into financial trouble later?

Capital withdrawal or pension payment – what does that even mean?

When you retire and your pension fund is due to pay out your retirement capital, you generally have three options in Switzerland:

Pension payment means you receive a fixed amount of money every month for life. The pension fund converts your saved balance using a conversion rate and pays out the resulting pension monthly. This provides security because you have a regular source of income without having to worry about managing investments yourself.

Capital withdrawal means you receive your entire retirement balance (or part of it) in one go. This gives you maximum freedom – you decide what to do with the money: invest it, finance a major project, pay off debts, buy a motorhome, or travel. However, you also take on the risk: the money must be managed wisely and used so that it lasts – ideally for life.

Combination Many people choose a mix of both options. For example, you can withdraw part as capital to fund special wishes or larger projects and keep the rest as an annuity to ensure a secure monthly income.

Advantages and Disadvantages – Capital Withdrawal vs. Pension Payment

Here’s an overview of the pros and cons of each option:

Pension Payment – Advantages

• Lifelong, secure pension paid monthly
• Easy to plan your household budget
  
• No need to manage investments yourself
  
• Often includes family protection through survivor’s pension

Pension Payment – Disadvantages

• Low flexibility since the capital is not freely available
• Remaining capital usually goes to the pension fund upon death, not to heirs
  
• Purchasing power may decline over the years due to inflation
• Dependence on the conversion rate, which may continue to decrease in the future
  

Capital Withdrawal – Advantages

• High flexibility since the capital is freely available
  
• Ability to finance major projects like world travel or real estate purchases
• Remaining capital can be passed on to heirs
• Possible tax advantages depending on canton and withdrawal amount

Capital Withdrawal – Disadvantages

• Personal responsibility for managing and investing the assets
  
• Risk that the capital may not last a lifetime, especially with long life expectancy
• Risk of poor investment decisions
• Requires discipline and financial knowledge

Will my savings be enough for my lifestyle?

A useful rule of thumb says: After retirement, you should have about 70 to 80 percent of your last income available to maintain your usual standard of living. But that’s only a rough guideline. Some people spend less in retirement because, for example, they no longer have commuting expenses.

Others spend more – for travel, leisure activities, or hobbies. Therefore, it’s important to examine your personal expenses carefully. Write down your fixed costs, how much you need each month for food, health insurance premiums, and other insurances, and how much you want to budget for leisure or bigger goals.

This helps you quickly see whether your expected AHV and pension income plus savings are enough, or whether you have a gap that you should close through private savings (Pillar 3a).

What costs will you face after retirement?

Many assume that expenses drop significantly after retirement. But that’s not necessarily true – some costs remain the same or even rise:

Health insurance premiums:You’ll continue to pay these, and they often increase with age. Medication and treatment costs also tend to rise.

Taxes:Even in retirement, you’ll pay taxes. AHV and pension income are taxable. A lump-sum withdrawal is taxed only once, but depending on amount and canton, the tax can still be significant.

Housing:Whether you rent or own a home, housing remains a major expense. Homeowners must consider maintenance and potential renovations, renters their monthly rent.

Leisure and travel:Many retirees want to use their free time to explore the world or take up new hobbies, which often costs more than expected.

Care and support:With age, the risk of needing care increases. These costs can be very high, so planning reserves is essential.

When retiring, it’s crucial not to underestimate your budget. Plan with slightly higher expenses to avoid unpleasant surprises.

Inflation – why your money loses value over the years

Inflation is a topic often underestimated.. It means that prices for goods and services rise over time, reducing the purchasing power of your money.

Example: Today, CHF 5,000 per month might be enough to cover your expenses.But with an average inflation rate of 2% per year, in 20 years you’ll need about CHF 7,400 to maintain the same standard of living.

This shows how important it is to plan not just for today, but also for the future. Retirement planning should therefore include inflation-protected investments – for example, stocks or funds that can generate returns higher than inflation over the long term.

How can larger projects be financed after retirement?

Many dream of seeing more of the world, buying a motorhome, or acquiring a holiday home after retirement. But such projects require significant funds.

Using capital withdrawal:
As explained earlier, capital withdrawal gives you the freedom to use a larger sum all at once. If you’re planning a project, you can reserve that money for it. What’s important is to plan carefully in advance – how much money is needed and how much you’ll still need for everyday expenses.

Third pillar (Pillar 3a / 3b):
In Switzerland, you can voluntarily pay money into private retirement savings. Pillar 3a offers tax advantages. If you’ve contributed regularly to the 3rd pillar before retirement, you can use the accumulated capital for major projects without severely affecting your pension income.

Withdrawal plan for capital:
A withdrawal plan is a structured schedule that determines how much capital you want to use each year to finance your goals. For example, you might withdraw a certain amount once a year over five years for travel or personal projects. 

Investments with returns:
Instead of simply spending your capital, you can invest it – for example, in stocks or ETFs, real estate, or other assets. If returns exceed inflation, your wealth continues to grow and you’ll have ongoing income to supplement your pension. 

Planning projects in stages:
Not all projects need to be completed at once. For instance, you could fund a motorhome purchase in two stages or choose a smaller model to protect your budget. This allows you to fulfill your dreams step by step without depleting your savings too quickly.

Conclusion

Retirement brings many financial questions that shouldn’t be taken lightly. Whether capital withdrawal or pension payment, the key is to understand what these options mean and their advantages and disadvantages. Only then can you choose the solution that fits you best.

It’s equally important to take a realistic look at expenses after retirement. Health insurance, taxes, housing, and leisure all add up, and inflation further reduces your purchasing power over time.

Those planning larger projects should consider capital withdrawal and the third pillar as financing sources. Early planning ensures that you’re not only financially secure in retirement but also able to fulfill long-held dreams.