Should we talk about retirement for young people?

Before thinking about his old age, a young person must first worry about his education and finding a job. The quality of your retirement will depend on the quality of your professional career.

At What Age Should You Worry About Your Retirement? Of course, the sooner the better, but the quality of a pension does not only depend on the date of the first payment to the different pillars. It also results from your professional background and, as a corollary, from your ability to save. It therefore depends on a long-term strategy, part of which develops without us necessarily realizing it.

A Fiftieth Anniversary Concern

Retirement is at the heart of Swiss men and women’s concerns. Polls confirm this regularly, and citizens vote – almost as regularly – on possible changes to pension laws. A look at the age pyramid (see infographic) explains the importance currently attributed to this topic. Baby boomers are approaching retirement – ​​or already are – while the age groups that must participate in the funding of that same retirement are less populated. The pyramid was thus transformed into a mushroom, modifying one of the basic facts of a system based on intergenerational solidarity.

The debate is all the more lively as the generation approaching retirement is also faced with the limits of the 2nd pillar remuneration model. The amount of their occupational pensions had to take into account the decrease in the third contributor – investments – during periods of low interest rates and a fall in the conversion rate, ie the ratio that determines the pension of their occupational pensions. A second look at the age pyramid underlines this: the problem will be significantly different for those today aspiring to enter the world of work. This is all the more true as the economic environment is changing and seeing the return of a period of inflationary trends after decades of downward pressure on prices.

Part-time = partial retirement

So should we talk about retirement for young people? The question must indeed be taken on the right side. In their twenties, young people must first think about their education, find a job and simply build their future life. The question of equity comes next. But choosing your way of life – and therefore of work – also means taking action in your retirement. The smooth functioning of the Swiss three-pillar system, whose principle celebrates its 50th anniversary this year, is based on having a stable full-time job throughout your career. Opt for other models today – part-time, irregular employment, etc. – does not fail to have consequences for the coverage of your pension. Thus, in 2020, the median old-age pension paid for the first time by the 2nd pillar was almost twice as high among men as among women. The cause of this difference: less linear careers and persistent pay gaps. It is best to be aware of this when any reform of the system takes time and the evolution of society is not yet included in the revisions under discussion.

life before retirement

The first steps into the world of pensions are thus taken almost unconsciously. Assets are naturally constituted through mandatory contributions to the AVS and to the workers’ occupational pension schemes. For the first pillar, the AVS, the important thing is the regular payments of the 1ster January after your 20and birthday. The amount received on the night of his professional life is used to guarantee the retiree’s autonomy. It depends on the number of years of contribution and even – but to a lesser extent – ​​on the salary received.

The salary issue is, however, essential for the 2nd pillar, which constitutes a large part of the retirement income of the majority of the population. Based on the capitalization of the employee’s share, the employer’s share and the third-party contributor, it therefore varies according to salary. Mandatory for all employees, its importance will be reflected in the professional path of each one.

Even before serving in old age, foresight also helps to build better life. To buy housing, to start a family. Thus, 2nd pillar assets can be used well before age 64 or 65. They can participate in the constitution of half of the 20% of the share capital necessary for the acquisition of their house. They also make it possible to meet your family’s needs in the event of disability or death.

improve your wealth

The question of increasing this heritage comes into play more consciously in a second phase. When the children gained autonomy, when the salary evolution allows it, when a certain capacity for savings is achieved. So it’s time to talk about redemptions to improve your 2nd pillar assets – tax deductible – or to increase your payouts to a possible 3rd pillar, which is voluntary and optional. The constitution of a linked third pillar (3a) can also be interesting from an early stage, as it is tax-exempt up to a certain point. In 2022, that’s 6,883 francs a year.

A lifecycle allocation

The allocation of your pension assets – in particular the 3rd pillar – can also change according to their life cycle. Roughly speaking, the further away from retirement, the more risks one can take, the closer it is, the more it is about securing wealth. A risk-taking that must, however, always correspond to your profile, your lifestyle.

So a retreat should be thought of in stages, as fast as possible, of course, but not frantically. It is not worth discouraging young people with a distant retirement even before integrating them into professional life. On the other hand, each individual must assess the financial implications of every change in status – marriage, divorce, career, part-time, unemployment, self-employment, etc. At the risk of having to live on minimum pensions in retirement.

Leave a Comment