Saving for old age: what type of saver are you?

Last update: 17.09.2024 08:34

Saving for old age. Sure, what you can do today, I’m happy to put off until tomorrow. Better to live now, later is still possible. Right? Get to know the five key factors that determine how much money you’ll get later. And no matter what type of saver you are, find out how you can get even more for yourself.

You prepare for your retirement at 25 and not at 55 or 60

Many people think I can save for my old age later. When I’m old. Later is still soon enough. Who knows if I’ll even live to see it? If you share this opinion, you should definitely take a look at the story of Sissa bin Dahir. He became so rich that his boss went bankrupt. Because of the compound interest effect. And it works really well if you start preparing for your retirement at 25 and not at 55. When it comes to retirement planning, there is never “too early”, only “too late”. That’s why it’s important that you don’t just rely on the AHV and pension fund. Because you’ll always end up with less. That’s why it’s a good idea to start looking into private pension provision. Let’s do it.

Saving for old age: what is important when it comes to financial planning?

I used to think it would be easy for everyone to put something aside for private provision. Of course, a few principles help: spend less than you could. Pay yourself first. Keep track of how much you spend on what. Use compound interest. I now believe that much of your financial life also depends on your circumstances.

But no matter what your circumstances are and what type of saver you are at the moment, you can’t sit back comfortably, casually and apologetically. Along the lines of “I can’t do any more”. Nor is it the case that people with a favorable starting position are automatically super on track with saving for old age. Different circumstances just mean that some of us may find it easier to get a grip on our finances. But you can do it too.

They determine what your finances will look like in retirement. Four of these five are definitely within your control:

1. how much money you earn (income)
2. when you start saving (start of saving)
3. how much you save from your income (savings rate)
4. when you want to retire (start of retirement)
5. what return you achieve on your assets (yield)

What do you have the least influence on, but what is most often addressed by your bank in your private pension provision? Point 5, the return on your investments. The return on the capital market is beyond your control. Here you can expect around 7% in the long term if you invest in shares. (I’ll write a separate article on what realistic returns are in the near future). When it comes to returns, you can easily optimize your finances with little effort. Your greatest leverage lies in factors 1 to 4, which are within your sphere of influence and which YOU have under control.

Saving for old age: the seven types of savings

In conversations, we repeatedly see different patterns of how people deal with putting money aside today for later. These patterns were also uncovered in a study conducted by the ZHAW, in which bank and insurance advisors were first asked about their customers and then 1,000 Swiss people between the ages of 25 and 65 were surveyed in a representative mix. Let’s take a closer look at these patterns. They can be broken down into three hopeful and four proactive savings types. Do you recognize yourself in one of the savings types? We’ll tell you what you can do if you do.

Unfortunately, there is a group of Swiss people who are unable or unwilling to save for their old age. This group will have to rely heavily on social insurance to finance their retirement. Because the Performance target of the first and second pillar is 60% for an income of CHF 85,320. What you are likely to receive from the state system is too little based on the rule of thumb of 80% requirement of the last income.

You have to do something yourself, and the higher your income, the more urgent it is. Yet 27% of women and 15% of men say they have no private pension provision; just over half (55%) say this is because they have “no money left over”. Perhaps these tips will help you set goals and start small. Frankly, we don’t think you belong to this group, as you are reading this article and taking the first step towards saving for retirement.

This group accounts for just under a seventh of the population. They prefer to spend their money. Maybe I won’t even be alive next month? I’m still young now, I want to experience something. It’ll work out somehow, the AHV and pension fund will sort it out and otherwise there’s bound to be a standard pension later on?

Those waiting already have a certain understanding and knowledge of finances and pensions, but are still somehow overwhelmed. They think about their retirement provision and are prepared to do something about it. And yet they procrastinate and put things off. If you’re here, you could be part of this group, because they do most of their research online. You know that you have to save for your old age, that you have to put something aside privately. But you always find a good reason to put it off until later. Because there are so many choices and decisions to make. Or because you’ll start saving when you’re ready.

We’re telling you: Now is good. Just start designing factor 2. For factor 3, the savings rate, perhaps you start with 15% of your income per month? That would be the Swiss savings average. Daniel and Philipp’s story shows you the effect of starting to save earlier.

Just under a quarter of the population is among the disoriented. As with procrastinators, this group includes many younger people. They prefer to spend money rather than save it. Unlike the procrastinators, however, the Straussians have little knowledge of financial and pension issues. They live with the contradiction that they do not trust the state system and are most afraid of poverty in old age and should therefore take action themselves with private provision – but do not do so. The same applies to the ostriches among us: simply start with a small savings rate (factors 2 and 3). Now. Do you need support? We are here for you.

Almost six out of ten Swiss people have implemented pension measures themselves. They are interested in their financial situation in retirement. A large proportion of this group are people who will be retiring relatively soon. This is why the level of financial and pension awareness in this group is also comparatively high. There are different types of savings in this group.

Newbies are comparatively young. They are only just starting to save for their old age and are making mistakes – but at least they are trying. And that’s a good thing, because when you’re young, it’s most important to start and learn to save. Newbies can still optimize 4 out of 5 factors for themselves. Be it in terms of income growth, increasing the savings rate, choosing their retirement age or optimizing returns. For example, by opting for passive products (index funds or ETFs) instead of active funds. Incidentally, there are also passive funds for pillar 3a that you can use to optimize your returns.

As a late starter, thelast minute saver has The newbies have a few structural disadvantages when it comes to saving for retirement. The compound interest effect is no longer as exponentially strong for them because their time horizon until retirement is much shorter than that of the newbies. And the closer he gets to retirement age, the less risky the investments should be. This reduces their expected investment return. In addition, the late starter has become accustomed to a lifestyle that makes increasing the savings rate tedious and stressful.

In addition to trying to increase their income, late starters still have the option of increasing their savings rate, thinking about when to retire or optimizing the return on their investments (taking more risk or choosing products with lower costs). Using the example of Daniel (45) and Philipp (25), you can see that last-minute saver Daniel needs to save three times more per month than newbie Philipp if he wants to have the same amount of assets as Philipp at 65. You can use the pension calculator to find out how the time of your retirement will affect your pension.

The Schlaufuchs is also one of the actors. His motto is “Help yourself and you will be helped”. That’s why he regularly saves a reasonable percentage of his income. He has thought through his finances and is well on the way to saving for his old age. He has a good understanding of the 5 factors, but still has some untapped potential. In line with his lifestyle, he has thought about how much he wants to save. Because his savings rate is as individual as you are.

Of course, the supporters of the FIRE movement are also among those taking action. Many FIRE supporters are millennials, i.e. people born in the 1980s and 1990s. However, their focus is not on saving for old age, but on the desire for financial independence. FIRE savers therefore take a close look at their finances and think very carefully about how they can optimize the 5 factors for themselves.

Essentially, five factors determine how much money you will have later in retirement: income, start of savings, savings rate, time of retirement and the return on your investments. No matter what type of saver you are, you can still prepare your finances for retirement: You can almost certainly make some improvements when it comes to saving for retirement. After all, you can influence most of the factors that determine your future income yourself. That’s why we say: Level up! What does it take for you to move up a level as a saver of any kind? For you to go from a procrastinator or ostrich to a newbie or a newbie? So that a worry becomes your provision?

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