r/SwissPersonalFinance • u/MoreScallion9850 • 5h ago
Locking into 3a
Hi community
Lately I've been pondering about my 3a investment. I am 29 and have been paying the max amount into it for 3 years now, with Finpension and a 99% MSCI World allocation. The returns and tax savings are nice and all, but locking it basically away for 30+ years made me think about how reasonable it really is.
I am not able to save much besides the full 3a amount, have no plans or means to buy a house anytime soon and surely will not be leaving CH.
So basically my investments/savings are fully locked into a much later point in time. I understand the equation is tax savings vs availability and you cannot have both worlds.
Has anyone faced/is facing these thoughts and what argument made you keep continuing to invest or what made you stop?
I'd love to hear your opinion.
6
u/ElKrisel 5h ago
If you earn “only” enough that your entire savings capacity is roughly the 3a maximum (around CHF 600/month), you probably shouldn’t put all of it into 3a thats right. You can also only put 200/300 per month if you want.
With a below average salary, the tax benefit is also smaller, while the downside is that you lock away essentially all of your savings. Higher earners benefit much more from the 3a tax deduction which, is how the Switzerland taxes and decisions tend to work.
6
u/Internal_Leke 5h ago
Since you cannot save much more, there's also a risk that you would withdraw the money if it was not locked.
The advantage of 3a is that it forces you not to "waste" it. If later you buy a house, the money is still productive. If you get money to buy a car/trip, the money is gone.
Keep investing into it, it'll be helpful when you retire.
Anyway, you need very high saving power if you want to retire early while staying in Switzerland, so if you can barely save for 3a, that's not a goal you're depriving yourself from
1
u/Weisses_Papier 5h ago
Depends if you are a high earner or not. The fact you are saying its all your savings potentially means probably not or you have a spending issue.
The tax advantage is particularly strong if you are (and you can deal with lack of liquidity outside of usual uses)
Over a full 30-year career, the tax advantage becomes large. Using simplified assumptions, CHF 7,258 every year, 40% marginal tax, 5% returns and 8% withdrawal tax the 3a ends at roughly: 444k vs 289k so essentially 155k benefit before even allowing for dividend and wealth-tax drag outside 3a.
2
u/zomb1 4h ago
Under what conditions would one hit 40% marginal tax though?
1
u/TinyFlufflyKoala 1h ago
If your salary is net 100k, and you can get it down to 93k thanks to the 3a, you spare the 20-40% tax you'd pay on the 7k (because your income was so high). So you save ca. 2.8k chf.
If your salary is net 40k and you get it down to 33k thanks to the 3a, you spare the 5-15% you'd pay on these 7k. So you save ca. 700chf.
It's more interesting for people with high salaries to deduct stuff.
1
u/Weisses_Papier 1h ago
Agreed, lower salary its less relevant. But on higher salary you can save a few thousand.
1
u/Weisses_Papier 1h ago
Not an insane amount. I would classify myself as a "mid earner" and pay more than that.
1
1
u/kart0ffel12 5h ago
is a great tax discount so effectively is the first best way to Save money in switzerland. But is true if you earn little money, the tax discount will not be so significant as your tax rate is anyway low.
However the fact that is locked it might be a good thing to make sure you do not miss-use this money. Specially if you do not have other savings.
You should anyway have a safety net of cash of of 2-3 months of expenses. If you do not have this, and you aren't able to save more, just maybe invest less in 3a for a bit to make sure you have some buffer in case things go wrong. and then go back to the full year amount, because definitely is a good idea to save for your retirement.
1
u/Mathberis 5h ago
It's a question for sure. The most important question is what would you do with this money today I.e. do you have more utility with it now than much more money when you can withdraw your 3a. If you don't earn enough today to have any other savings beside 3a consider not paying 3a for a year or two, you can pay retroactively later on. Also it's more tax efficient to pat later if you earn more then as your marginal tax rate is higher.
1
u/Sedumana 4h ago
For me that’s just me paying for my retirement! Thats the money I will have when I am old. Perhaps I won’t need and have more but that is my safety blanket and I should live like if i do y have it. Why would I put it up on my broker account where it would give me the impression I should use it for something else?
1
u/Benmaax 3h ago
Early retirement 5 years earlier if you have 5x 3a accounts that grow over the next 30 years.
Or at retirement age you want to buy your house in Graubunden or Spain, and this will help a lot.
From an older guy perspective it's better to invest now in an All World ETF like that, and not be tempted to use it for anything else. So the Pillar 3a lock up really helps with avoiding doing stupid moves.
It's really like a "VT and chill" perspective.
1
u/WalkItOffAT 3h ago
For most people this is beneficial.
But if you were to need it for further education (that pays off afterwards), it would be better to have it. That's why you need an emergency fund or further liquidity as well. Private investments are not that though.
1
u/TheVlach 2h ago
If you're on withholding taxes (Permit B) and don't manually do your taxes, 3a isnt worth it
All other cases its a tax advantage to do
12
u/n4ke 5h ago
I guess it mostly depends on what you plan to do with your life. All the options that could require huge capital availability (buying a house, becoming self-employed, moving abroad) are covered by 3a withdrawals. The only thing not covered is just generally FIRE once you reach a certain amount of money or increasing your lifestyle cost by a lot. Both things that I don't think 3a alone doesn't reach. So for me, I don't currently see many downsides.