Eleven Gems on the Net #4 – White Mirror

Hi dreamers,

Welcome back to another episode of Eleven Gems on the Net (EGN, for friends), where i share few inspiring links I’ve found on the web.

This episode is a special edition of EGN!

berlutrumpThey say 2016 has been a sheetty year: Brexit, ISIS, Syrian refugees crysis, the death of so many famous&cool persons (David Bowie, Prince, Gene Wilder, Muhammed Ali,…), the election of Silvio Berlusconi as US President

but I’m a Futuristic by heart (backed by Gallup Strengthsfinder) and I’m still utterly optimistic about our future! I’ve also seen so many promising endeavours all around me that I still think the bright side will win. This edition of EGN is all about our future and how bright it could be. I’m going to dig into eleven technologic fields that are arising and that may be dominating our lives tomorrow, hopefully in joyful ways.

I named this special episode White Mirror as a joke, in contrast with the amazing series Black Mirror. While the series focuses on the dystopian aspects of current/future technologies, I’ll show here why I’m so inspired by them!

Hey RIP, why the hell are you annoying us with this stuff? I’m here to find awesome-money stuff, ultra-saving tips, cool-investing hints, earning-more tricks, wealth-building prompts…

Welcome to EGN my dear imaginary friend! First time here, isn’t it? Well, this series is about inspiration. What’s more inspiring than our future? Btw, I see a lot of connections between what’s presented here and personal finance, macro-economy, lifestyle and meaning of time, money, work and life.

  • Want tips to earn more? Invest time and resources into these fields!
  • Scared about the limits of economic growth? As uncle Buzz says “Get your ass to Mars“, colonise it, colonise the rest of the solar system and the rest of the galaxy! Still scared for your index fund potential growth?
  • Scared of Artificial Intelligence? It may make you FI tomorrow even with a NW of zero!

My guess is that technology will change future society waaaaay more than politics do. So yes, this post has to do with your money, your plans, your (and our) future.

enjoy!

11gems

1) Artificial Intelligence / Machine learning

Trying to keep the list sorted by potential impact on our lives, first on the list is ML or AI or Deep Learning or whatever else you want to call it. AI will seriously revolutionise everything within this century. The most inspiring resource about AI and its future is WaitButWhy post series, dated 2 years ago. Check it out: Part 1, Part 2. Let’s admit that 2016 has been quite a silent year for AI, just not as inspiring as the amazing 2015, where AlphaGo defeated Lee Sedol.

Ok, want to be impressed with a video? Watching Westworld isn’t enough? Take a look at this TED

2) Space Exploration

Second place for space exploration! I think I’ve already told you I’m a big fan of astronomy, astrophysics, big history and space exploration. And Elon Musk. What? A million times? Ok, got it.

I strongly believe that visiting space is what makes me angry the most of having to die somewhere in this century. We’ve not yet really started doing cool things, what could happen is unimaginable. The sky is the limit… wait, it isn’t anymore!

I don’t want to repost the Musk’s video about Mars colonisation plan, go there NOW if you missed it. Here let’s get inspired by what human species did in last 70 years, and by projection what we could achieve in next 70!

3) Genetics

Genetics completes the top 3, given its potential impact. We all know the genome project and the very recent CRISPR / CAS system don’t we? We’re going to be able to edit our DNA. It’s something that scares me a little bit, I’m more on the black mirror side of this (strangely there’s not been a genetic exploiting episode in Black Mirror yet) since I’m not in the field, but it’s hard to admit that it won’t have impact in our lives. Genetic diseases could be completely eradicated and that’s a good thing.

If you want to watch more, take a look at this video by Bozeman Science or the two amazing videos by Kurzgesagt (first, second) or this nice TED talk. But ok, let’s get inspired here 🙂

4) Energy

Future is… energy of course! We all nerd know about the Dyson sphere, right? A level 1, 2 and 3 civilization, right? No? Ok, let’s put it simple: despite what the newly elected most powerful man in the world thinks, fossil fuel energy won’t last and we shouldn’t rely on it. The environment doesn’t like it too, ’cause “burning shits pollutes me“. Energy revolution is here and things are going to change drastically this century.

Again, one of the main driver of this revolution is Elon Musk. What a man! Take a look at Powerwall, Gigafactory and Solarcity.

But the latest inspiring video I’ve seen about energy is SolarRoof presentation!

Don’t believe it’s real? Don’t believe it’s doable? Want to keep up with oil wars and exporting democracy? What about… electric cars? They are already here and growing a lot! Take a look at Tesla Model 3 presentation! I don’t like cars, but if I will ever have to own one, I’d go electric.

But I’d rather go for…

5) Autonomous Vehicles

If you asked me to sort this list a couple of years ago I’ve put Autonomous Vehicles on top for sure. I’ve been amazed by Google Driverless Car since day one. Just imagine what this could mean for our lives. No more parking lots, no more accidents, no need for traffic lights and, actually no more traffic at all!

And it’s not only driverless cars. Someone is building driverless jets, driverless trucks (which will kill the job in the US that employs the highest number of people) and even self driving bicycles (ok, joking)!

But let’s get inspired by a TED talk:

6) Fast ground transportation

Hyperloop! Elon, again. Yes, sorry guys. When I think about the future, Elon always pops up. We need more Elons.

Hyperloop is a revolutionary idea of mass fast ground transportation in vacuum tunnels. You’ll reach easily 1000-1200 km/h, same as today’s airplanes. If you didn’t hear about it, here’s a project for Dubai – Abu Dhabi. Check it out.

7) Augmented reality

What is AR? Thanks to Wikipedia:

Augmented reality (AR) is a live direct or indirect view of a physical, real-world environment whose elements are augmented (or supplemented) by computer-generated sensory input such as sound, video, graphics or GPS data.

I was skeptical about AR since a couple of months ago. I mean, skeptical of AR being impactful for a significant portion of the population. The Google Glass failed. We all were betting on it, weren’t we? It’s a failure for the whole AR world? Well, take a look at Magic Leap and their whale demo. Take a look at Microsoft Hololens. But let’s get inspired by Hiddencreative!

Even though I’m not buying it completely, I think it’s pretty obvious that this is going to dominate our lives in the very near future. It’s not a coincidence that at least 4 Black Mirror episodes revolves around AR (Nosedive, Men against fire, Playtest, The entire history of you). Be ready!

8) Virtual Reality.

Even though I’m so old that I had an account on secondlife (holy sheet how much it sucked!) and I devoured Ready Player One twice, I still believe VR will just be an entertainment thing only (and I don’t mean “just porn”), but on a very large scale. Things like 360 videos, VR devices (headsets/visors, suits, omni directional treadmills), VR games are coming to the mass. I already shared the facebook demo that opened my eyes. Let’s get inspired here by a TED talk about the future of VR!

More TEDs here, here and a very cool one here. VR is a very hot topic on TED talks!

9) Robotics.

I’d never though I’d put “robotics” so low in a future technology ranking! I went all in on robotics 15 years ago and even though I quit the field I kept being an enthusiast supporter. Three years ago robotics promised yet-another-time to be ready to go. 2013-2014 Google acquired a dozen robotics companies and we all thought the robotic revolution was (finally) going to happen! It didn’t happen (yet).

But they’re always around the corner

10) Voice.

By voice I mean several things: voice recognition, voice HCI, natural language understanding. Ok, it’s AI, I know. I should have mentioned in the AI chapter. But let’s focus on the HCI (Human Computer interaction) here. Things are going to be voice operated. Amazon launched Echo, Google launched Home (and the Smart Assistant) which one is the coolest? The future will be voice operated. You won’t use your hands to “type” a command. Mouse and Keyboard are dying, touchscreens will die too (well, not sure…). Voice is the future.

11) Drones.

I’m not a big fan of drones. They are boring. They are for voyeurism. What can you do with drones? Ok, I’ll take a look at your video… whaaaat???

I hope you dreamed a little bit 🙂

 

NOTE: I’m going to Mexico for 2 weeks to build a wall and pay for it on vacation. Don’t expect updates for a while 🙂

Lump Sum Tax on Pillar 2 & 3 – Kapitalauszahlungssteuer

Gruezi RIP Freunde,

Welcome back to the Switzerland series!

Today questions are: when and how will my Pillar 2 & 3 be taxed?

We’ve took a look at the Swiss Pension System in a previous post. We’ve seen how Pillar 1, 2 and 3(a) work. We’ve seen that Pillar 2 & 3a are pre-tax investments thus when you withdraw them as lump sum you have to pay a tax named Kapitalauszahlungssteuer.

In this post we’re going to take a deeper look at this tax and how to optimize your withdrawing to pay as less a possible of it.

Let’s split the initial question in two. First: when will my Pillar 2 and 3a be taxed? When am I going to pay the Kapitalauszahlungssteuer, i.e. the lump sum tax?

You’re going to pay taxes based on the withdrawal actions from your Pillar 2 & 3a on each year. You can’t withdraw whenever you want from your tax advantage accounts though. Withdrawal actions from your Pillars happen when:

  • You reach retirement age and choose to get a portion (or the whole) capital as lump sum.
  • You buy a house of primary residence.
  • You start a company.
  • You permanently leave Switzerland.
  • (some other minor circumstances).

I said “on each year” because lump sum tax is based on the amount you withdraw during a tax year.

It means that if you withdraw X this year, you pay – this year – the tax due on the full withdraw of amount X. If, instead, you withdraw half of X this year and the other half next year, you pay the lump sum tax due on a withdraw of half of X both this year and next year, which is usually less than the tax due on a single withdraw of X thanks to the progressivity of the tax.

So, first rule of thumb: if possible, split the withdraws over more than one year.

Before moving to the second question, I need to admit that I don’t know the actual details of Kapitalauszahlungssteuer payments. I mean, if you withdraw from N different Pillar 3a accounts you owe the tax due on the whole withdrawn amount. I’m not sure you get to access the gross amount from your accounts and then pay your tax at tax declaration time the year after. You may have left the country and be unreachable (and not accountable any more). I guess your funds/vested benefits accounts are going to withhold the expected tax on each lump sum and then you have to pay the difference at tax time, which is still risky for the government but at least you’ve already paid a good portion of your due tax. A safer option for the government would be to force you to communicate all other withdraws and withholds you had during the year so that on each withdraw you’ll pay the right tax due. I’d love if someone could bring their experience and clarify this point. Anyway, that’s just a technical issue and if you (like me) don’t plan to game the system in illegal ways (don’t, just don’t!) you shouldn’t care.

There are legal ways to minimize tax due though. For example we’ve already seen that splitting the withdraw over multiple years helps.

Next trick is: the lump sum tax is due in the Canton where your fund/vested benefits account is domiciled. It doesn’t depend on your domicile, even though your employer’s Pillar 2 and your Pillar 3a bank accounts are probably in your Canton of residence.

RIP, does that make some difference? Do I have control over it?

Sure my friend, let’s take a look at the tax rates on some popular Cantons. I’ve manually pulled data from the PostFinance tool for lump sum payments and I’ve created this spreadsheet. Here’s a screenshot

lumpsumrates

Data have been extracted beginning of November 2016. They’re probably going to change every year since federal government and individual Cantons can change their tax brackets. Having a way to extract numbers automatically would be great (I tried to inspect the HTML to find some API I could call but I failed). I won’t keep the spreadsheet in sync with the official data in future.

The Cantons considered for the analysis are:

  • Zurich, Zug, Schwyz and Bern (German speaking)
  • Geneve and Vaud (French speaking)
  • Ticino (Italian speaking)

The selected Cantons represents all the (main) language areas of Switzerland, they are roughly the most populated ones (sorry Aargau). Some of them are there just show off their tax skills (welcome Zug and Schwyz).

On the left column of each region you’ve the amount to withdraw. I’ve analysed the range 0-2M CHF with 50K increases till 300K, then 100K increases till 1M, then 200K increases till 2M.

The upper blocks are absolute tax you’d pay to withdraw that amount in that Canton. Lower blocks are percentages.

There are 3 different scenarios analysed:

  • Single person with no kids.
  • Single person with with kids, apparently it doesn’t matter how many.
  • Married couple, same applies for registered partnerships / civil unions. Apparently it doesn’t matter if you have kids. Most of the time tax brackets for a married couple are identical to those for a single with kids.

I completely removed church tax from the equation. All scenarios are without religious affiliation. Yes, in Switzerland there’s a tax on your religious affiliation.

Hi highlighted the top 3 (three shades of green) and the worst (orange) Cantons from a tax perspective on each scenario.

Few considerations:

  • Zurich sucks.
  • Vaud sucks.
  • Zug is the asymptotic best Canton on every scenario.
  • Schwyz is awesome for married couple up to 300K.
  • Ticino Canton is amazing from 200K to 1M.

Some graphs (click on the images to enlarge them):

Ok RIP, great, now I know I live in a sheetty Canton and when I’ll get my Pillar 2 I pay a lot of taxes. Is there something I can do about it?

Yeah, you have control over it. You can open a vested benefit account in a Canton you like and transfer your funds there. There are even institutions who can do that for you (with reasonable fees).

So don’t worry, keep accumulating wealth into your Pillar 2 & 3a and at the time of withdrawal just evaluate if it makes sense to open a vested benefit account in a tax favorable Canton.

Mind that in 2020 there will be a major Pillar 1 & 2 reform and that they may make harder to pull money from Pillars (and Cantons can always play with the lump sum tax rates). There’s no guarantee that your today’s strategy will work tomorrow.

But… what happens if I have a Pillar 2 in Canton X and a Pillar 3a in Canton Y?

Well, I don’t know. I don’t think you’re going to pay taxes on each Canton based on the split funds volumes, that alone would be another nice tactic. I guess you pay the marginal tax on the amount you withdraw on each Canton based on previous withdraws as if they were all in the Canton where you’re performing the withdraw. But these are just speculations, if anyone has more information please let me know.

That’s all folks!

Before letting you go, let’s analyze a case study:

RIP Family

  • According to rows 13 to 15 of my NW documentmy current Pillar 2 & 3a capital is 126K CHF (end of October 2016).
  • I do plan to invest 20K in a Pillar 2 buy in this year (2016).
  • I won’t do any other buy in on the following years: buy ins are locked for 3 years and I do want to be free to withdraw by January 2020 (which corresponds to my current optimistic FI date).
  • I do plan to keep investing 6.7K per year on Pillar 3a.
  • I plan to keep my Pillar 2 monthly contribution at 8.5% (100% matched) of my gross salary, which means ~2450 CHF per month. Probably going down since I’ll start working 80%, but I plan to get a promotion within 12-18 months so I can assume the average will stay the same.
  • I do plan to be in the Married/Partnership or at least have a kid.
  • I assume Pillar 2 interests of 1% and Pillar 3a interests of 0.2%.
  • I may work a little bit to find a better Pillar 3a options but it’s not my first priority. I may leave Switzerland in 3-5 years and I may be ok with investing in a saving account. We’re talking of 4-6 Pillar 3a contributions, i.e. 27-40K CHF.

This leads to a Pillar 2 & 3a projection of ~275K by January 2020 and 355K by January 2022 (forecast spreadsheet here).

Zooming in below 500K - Schwyz is your answer till 350K. Why does Vaud suck so much?
Zooming in below 500K – Schwyz is your answer till 350K. Why does Vaud suck so much?

Assuming, from a tax perspective, the worst case scenario where I won’t be able to split the withdraw between 2 tax years and that I will be able to withdraw the whole Pillar 2 (even the mandatory portion), it means I should expect a tax rate of 4.5 – 6.5%. Best Canton for my situation is Schwyz, with a tax rate of 4.5 – 5.5%. In my NW document I’m already taking this into account and expecting a tax rate of 5.3% (row 62).

Will it be worth to move my funds in Canton Schwyz? Well, we’re talking about 1 – 1.5% tax difference with respect current situation, i.e. a 3-4K CHF difference – hint: I don’t live in Canton Vaud 😀

I don’t know if it will be worth, I’ll think about it at withdrawing time.

That’s finally all 🙂

Enjoy!

Unemployment in Switzerland

Hi RIP friends,

Today we have the first guest post on this blog! I asked a close friend of RIP family to write something about being unemployed in Switzerland. This post fits in the Switzerland series, where we discuss how’s life and work (and the lack of it) in Switzerland.

So… welcome Mr. DIP!

No, guys, Mr DIP is not an “imaginary friend of mine”.

But RIP, you used to talk with your imaginary friend on this blog!!

Yes, I know I sometimes like to draw a post as an imaginary talk with an imaginary friend of mine, but it’s not the case for Mr DIP! Trust me, my… my imaginary… friend.

Anyway, welcome Mr DIP, it seems we’re going to see you again on this blog 🙂


I don’t know why all those places look exactly the same. They’re all like… like you see them in the movies. Trust me, I am an expert. It all started when I was a teenager. In and out of them. Sometimes I succeed for a while, but then I fell down again and again.

I remember the very first time. I was 17 or 18 I guess. I’m sure that I hadn’t a driving license yet, so it must have been before age 18. I remember I was going around by bike, after school, looking for itA friend of mine that started some months before gave me few contacts, phone numbers, even physical addresses. He said: “trust me, there you could find what you need”. He also told me that as soon as I’d begin with it I would have suddenly felt more adult, more independent… a free man! Of course he omitted to say that once you start it’s almost impossible to stop. It’s addictive. I don’t blame him though. He’s not guilty, of course. He was probably not fully aware of what we were just doing.

Anyway, fast forward more than 20 years and I’m sitting here, in this bare room lighted with a cold, partially blinking neon lamp. There is a ring of cheap chairs in the middle of the room. On the otherwise empty walls just a couple of posters from the nineties. One of them picturing a happy smiling family that appears to come from another world. The other one is announcing the national 1997 meeting of the association.

Well, it’s my turn. Let’s go!

I stand up. I know, it’s visible and I don’t care… I am nervous. Every week it’s the same torture. Even though I know that I am clean, I can’t help myself. It always feels like the very first day of school.

I breathe…

Again…

And finally: “HELLO, MY NAME IS MR. DIP….. AND I AM A WORKAHOLIC! TODAY ARE 314 DAYS THAT I AM TOTALLY CLEAN

I did it!!

First one to stand up is John, the homeless. He is the older member of the crew and the most devoted too. Legends say that he never worked! He comes and hugs me strong. Then, one by one, all the others stood up clapping sincerely. A standing ovation! I can read happiness on their faces. Happiness for my impressive score and a spark of hope for themselves. There is the ex banker, FI since 6 months. Two actually retired guys, but we all have to check on them periodically since it’s so difficult for them to accept that they don’t have to go to work every day. Then there’s Thomas, an ex CEO from a multinational company fired with an embarrassing fat severance package, but I’m sure he’ll stay briefly with us. He’s so dangerously addicted. I bet on just a couple of weeks.

There is also an observer. A real worker. A man from the dark side. I’m watching you, Mr. RIP!!! I know that you think you can stop whenever you want. You’re so naive… I have to admit that you are diligently doing your homework… Unfortunately, coming out from the shifting sand of a guaranteed work is not so easy as it seems. Luckily I, John, the banker and the others will always be here to help!

So, now you know me. I am Mr. DIP and I am F.I. since the beginning of the year… well… it should be better to say that I am temporary F.I. or that I am testing the life of a retired, just to be sure I don’t discover that I don’t like it when the actual retirement comes at age ~70.

In other words, I AM UNEMPLOYED, which here in Switzerland it exactly means to be FI for a certain period, and I am here to tell you about this amazing experience.

First of all, why MR. DIP? Well, it is the acronyms of Depression In Progress. That’s because no matter which one of the possible paths this story would evolve, I will certainly be depressed, sooner or later.

As a matter of fact, best case scenario I will find a Job in the next 14 months and then I will be depressed: I’d miss this amazing time of my life of waking up with no stress and no alarm clock, taking care of my little daughter, making something for myself like learning a new language. Everything will be over. On the other side if I will not find a job I will become soon extremely poor… and of course I will be depressed by that.

Below you can find the status of my unemployment insurance period.

dip

But the real reason why I am here is because my friend and source of great inspiration Mr. RIP invited me to explain how the unemployment system works in Switzerland. So, take pencil and paper and be ready to note it down.

RECIPE FOR A SWISS SUCCESSFUL UNEMPLOYED:

Ingredients:

  • A worker, registered within the confederation.
  • A valid residence permit.
  • Having lost (or quit) partially or totally your job.
  • At least one year of work (and the relative payment of the unemployment insurance).
  • Having completed the compulsory education and not being yet retired.
  • Being willing to start immediately in case you receive an offer.

With these 6 simple elements you can happily register yourself to the RAV (Regionale Arbeitsvermittlungszentren), ORP (Offices régionaux de placement) or URC (Uffici regionali di collocamento) depending on the main language of your Kanton.

Note: you actually only need the first 3 ingredients to be register as unemployed at RAV (ORP or URC) but of course you will just receive a general consultancy, access to the RAV job databank and no unemployment compensation. In some cases RAV can decide to offer a basic language course or other elementary services to this subclass of unemployed citizens, like a CV clinic or similar.

If you are lucky enough to have collected all the above requirements then you can access to the golden paradise of the Full Swiss Unemployment System Package that includes:

  • A RAV consultant that you can must meet once a month.
  • The unemployment compensation ($$$).
  • Accident insurance.
  • Sickness insurance.
  • Paid holidays, i.e. a week every 60 days of unemployment.
  • 14 weeks of maternity, in case you are a woman… and only if you are pregnant!

Essentially you’re now a RAV employee, with rights and duties. Of course, nothing of the above comes for free:

  • You have to stay in Switzerland. You are not authorized to leave the country during the workdays – Monday to Friday – unless you have requested holidays (and had them approved), at least 14 days in advance. You must also be reachable per ordinary mail or telephone within 24 hours if needed, even while enjoying your holidays.
  • You have to demonstrate that you are actively looking for a Job on a monthly basis. You have to prove (with emails, phone calls, letters from companies you have contacted) that you have applied for at least 10/12 different positions each month, no matter how narrow your field is. Ten to twelve is your magic number.
  • You have notify your RAV consultant about any event that you’d normally be required to tell to your employer, as for example sickness.
  • It’s mandatory to “do your homework” that the consultant decides with for you. Like attending a German course.

If you miss one of the above your consultant can suspend the compensation for a while, and if you are recidivist he can suspend it permanently.

So, as you can easily see it all strongly depends on the RAV and your consultant. Which, believe it or not, is not the same entity that pays the unemployment compensation. For that there is a separate private insurance. There are many of them and at the beginning of your unemployment period you can choose among a selected and authorized numbers of them. Once picked one at the beginning, you only have to fill a form each month and bring it to your lovely insurance. Within 2 days you have your money in your bank account.

[RIP note: we’ve recently seen that unemployment insurance is part of the large Social Insurance System named Pillar 1]

And last but not least… the actual money! I know you’re all interested in this, so I kept it for the sweet ending: how is your unemployment compensation calculated?

Easy. It will be 70% (or 80% in case you have children below 25 years) of your insured salary. The “insured salary” is usually considered your last salary before unemployment or, in case of big swings during last months, the highest average salary between the last 6 and 12 months. Salaries lower than 500 and higher than 148,200 chf/year are not insured. It means that the best case scenario is a gross yearly unemployment compensation of 80% of 148,200 chf/year, i.e. 118,560 chf/year.

For how long can you receive unemployment compensation?

It’s complicated… To make it simple let’s say that if you worked at least 2 years as a full time employee then it’s 400 working days plus vacations (a week every 60 days). Yes, you’re paid day by day (but on a monthly basis). 400 daily allowances that have to be received in a two-year period. It’s more or less 22 actual months.

More info here.

That’s more or less all folks! I could add here details about my personal experience and opinion, but maybe we can leave it for another post.


Hamster Getting a Workout on Spinning Wheel --- Image by © Royalty-Free/Corbis
Hamster Getting a Workout on Spinning Wheel — Image by © Royalty-Free/Corbis

… sure there will be another post, DIP, I actually hope more than one.

Mr. DIP, thank you for your time!

I really wish you to get back boon on your hamster wheel, if that’s what makes you depressed the less.

Holy sheet guys, how can we help Mr. DIP? Well, keeping him busy with writing for this blog is a good start!

Next DIP’s episode would be about his personal experience and opinion, but I’m also planing to ask him to answer few more technical questions, like:

  • What happens if you receive a job offer? Are you really forced to accept an offer no matter what the compensation and/or job location is? Are you supposed to accept an offer from everywhere in the word? Everywhere in Switzerland?
  • What actions does the RAV take in order to help you getting back on the hamster wheel? Just a language course? Other professional courses?
  • What happens if there are less than 10-12 available open positions for your job title in your area? Should you send random CVs around to hit 12?
  • What about sickness? Are you receiving your daily allowance during a prolonged sick leave? Does it block the 400 days term?
  • Are vacation (a week every 60 days) paid? If they do extend the 400 days term, why isn’t it just a 446 days term instead (you roughly have 46 days of vacation on 400 days)?
  • What if I’m a self employed / freelance?

Any other specific question, readers?

I’d love to enjoy my hamster wheel too, but I’ve a different idea on how I’d like to play with it 🙂

hamsterrelaxed

Swiss Pension System a.k.a. Pillars for dummies and immigrants

Gruezi RIP Freunde,

This very long post is about the Swiss Pension System, with special attention to information for immigrants.

Let’s ask the main question: when and how are you suppose to retire in Switzerland?

In Switzerland you usually start working very early. Legal minimum depends on the kind of job and accordingly to wikipedia you may be allowed to work at age 13 (upon parental permission).

During your active years you accumulate retirement assets and then, at retirement age, you can finally use these assets by getting annuities and/or withdrawing lump sums.

Traditional Swiss retirement age is 65 for men and 64 for women. I heard they’re going to unify this soon to 65 for both genders. As everywhere else there’s public regulation over pension system (like Italy), things change over time, usually for the worse, due to increased life expectancy and high national public debt.

Ok, how does the Swiss pension system work?

Let’s introduce the 3 Pillars System: state pension, work pension, private pension.

overview

Let’s take a closer look at each pillar, one by one.

This article is structured in pages. Click on next page to start with Pillar 1 🙂

October 2016 Financial Update – Nel mezzo del cammin di nostra vita… (halfway done!)

Hi RIP voyeurs,

leavesOctober 2016 is gone. Amazing autumn here in Switzerland, colourful leaves all over the places and still not as cold as expected. As end-of-month routine I’m here showing my numbers with shame, since our spending level is still above my desires and next month won’t be better.

Need to wait till December to see the final comeback of our saving rate. Probably.

The reference document for the following considerations is my Net Worth spreadsheet. I’ll post a screenshot every month in these financial update posts.

Overview

october2016

Last month we had a nice +11.5K EUR, this month we achieved another surprising +13.3K, way above expectations, given market performance and high expenses. This is mostly due to EUR dropping few points against CHF and more against USD. From a USD point of view NW increased by 3K only.

Major wins of October 2016:

  • The EUR lost terrain against CHF and the USD skyrocketed. Since I’m measuring my wealth in EUR, it means a nice increase in our Net Worth.
  • Base salary higher than expected due to September bonus and leftovers from Hooli stocks automatic sale at vesting time to pay withholding taxes.
  • Initiated procedure to switch to 80% “part-time” at Hooli. Well, that’s not a “win” from a financial point of view, but I consider it as such on my FIRE path since my life quality will surely improve!
  • Tasted bits of freedom along the Appian way.

Major losses of October 2016:

  • Market performances have been fastidiously negative, with all my ETFs valued less respect the beginning of the month.
  • Milan’s apartment is still not rented out. Third wasted month in a row. A couple of person showed interest, none of them actually rented it. Thinking about selling it.
  • Still too much money spent, ~6500 CHF. November won’t be better. Mexico trip expenses so far don’t account for a week-long hotel stay (~1500 USD) and other local expenses for food, tickets and other stuff. These expenses will be in November update. Another >6000 month in sight. 🙁
  • Too many expensive gifts. In future we need to switch mindset and give time instead of stuff.

Other facts:

  • Paid off 6,000 EUR of family loan to RIP Sr. Only 3,000 left, planning to kill this only liability of mine in mid 2017.
  • Having redone all the math about my cash flow till January 2017, I allowed myself to invest another 11,000 USD into my S&P500 ETF.

Incomes

cumulusIncome for the month was 13,309 CHF (cell M55), a below average month essentially due to no stocks vesting.

  • ~10000 CHF my base net salary.
  • ~2200 CHF my Swiss pension Pillar 2 contributions.
  • 1000 CHF Miss RIP contribution to shared economy.
  • 35 CHF Migros points redeemed in Blue Cumulus coupons. I consider this an income, since they are technically just money. We go to Migros (one of the top grocery store in Switzerland) for our grocery on a weekly basis.
  • 10 CHF Debit Card points redeemed in SBB voucher. Same considerations as above. Voucher already used for December Milan’s trips.

Total income in 2016 so far is 148,110 CHF (cell P55).

Average monthly income in 2016 so far is 14,811 CHF (cell R55).

Forecast for the end of 2016 is still ~190K CHF. No surprises here. Actually, the linear forecast says ~177.7K but I explained that December will drastically be nonlinear.

No target set by end of year.

Spendings

moneycryTotal spending for the month was 6,526 CHF (cell M56). Another over the top month. Next expensive trip I’d like to book all at once and have a single bad month instead of splitting costs of the Mexico trip over 3 months. It looks like a death by thousand cuts.

Here’s the detailed list of expenses (in CHF):

  • 3151 – Travel & Transportation (Local, Trains, Planes). Yes. Unbelievable. Let’s break it down:
    • 2291 – Mexico tour. 2320 USD (2×1160) a week traveling from Cancun to San Cristobal, including an internal flight, hotels, entrance tickets and a tour guide and car rent with a driver.
    • 563Appian way. Lodging and food for a week. Cheap. It’s Italy. Actually I could have lowered this expense a bit, but I offered to pay for lodging to help my friend who came with me who is financially struggling.
    • 168 – Trains. 2 December trips to Milan, mainly for Project X (and Christmas). We purchase tickets in advance to pay them as little as 21 CHF each one (2 people, 2 roundtrips: 8 tickets).
    • 96 – Local Transportation. I biked to work till mid October and then took a monthly pass till mid November (then we go to Mexico). Next month I expect almost no local transport costs.
    • 33 – Gas. We used Miss RIP’s car while in Milan.
  • 1440 – Flat rent (1300) and condo fees (140). Business as usual.
  • 442 – Health Insurances (mine 213, Miss RIP’s one 229). We’re both insured with the cheapest insurance in Switzerland (Assura) and with the cheapest model (Family doctor + Pharmed) and highest deductible (2500 CHF). For the third consecutive year they’re going to raise premiums in January. I have time till end of November to change insurance company. We need to take action here. Variables are: which insurance, which model (telmed instead of family doctor), which deductible (probably lowering it to go to doctors more frequently) and accident coverage or not for Miss RIP (should save this extra 16 CHF, since she should be covered by her employer’s accident insurance).
  • 364 – Gifts. A lot. Too much. This is a category that we should cut a lot, but Miss RIP is so much into gifting friends for everything: birthdays, having kids, kids’ birthdays and other events like friends moving into new apartments. She’s so southern! 🙂
  • 289 – Groceries. I guess that’s ridiculous that we spend more on gifts than groceries.
  • 200 – Cleaning lady. every other Friday, 4 hours per Friday, 25 CHF per hour.
  • 200Project X. Yes, a secret project! We spent roughly (not all have been tracked and few expenses in the context of Project X have been categorized differently) 200 CHF but we think we’re going to spend a couple of zeroes more on this project from here to next summer.
  • 175 – Dinners Out. Not bad, considering that the most of it has been a single 102 EUR, four person amazing dinner in Milan to thanks a couple that’s helping us with Project X. Well, now that I think about it, this expense should be debited into Project X category.
  • 135 – Health. Miss RIP visit to doctor and blood analysis.
  • 70 – Utilities. Television, Internet, Phones. Energy’s missing here since they moved bills a month later. I’m paying my usual 55 CHF energy October bill in November.
  • 31 – Fees. 11 USD Trade fee on Interactive Brokers, 10 CHF for banking fees. Other minor fees .
  • 14 – Leisure. Flowers for our apartment. Miss RIP loves them 🙂
  • <15 – Not tracked. Good.

If we don’t consider travel (Mexico, Appian and Milan) expenses it would have been an acceptable month for our Switzerland standard. Expenses would have been ~3.5K.

Total spending for 2016 so far is 50,153 CHF (cell P56).

Average per month: 5,015 CHF (cell R56). Ouch, we are above 5K per month. Shame on us again.

Forecast for End of year: 60,184 CHF (cell S56). That critical 60K number…

Target for End of the Year: 60,000 CHF. Next month will still be above average, expected another 6K expenses (Mexico second week Hotel – 1.5K USD – and other extra expenses while in Mexico, like all the dinners). December might be cheaper in theory, but Project X may kick in brutally and bring our spending level unboundly high. Anyway, if nothing unexpected happen, we can still make it below 60K. We have ~10K margin for 2 months.

Savings & Saving Rate

Total savings for October are 6,783 CHF (cell M57). Low income, high spending and still ‘stashed 6.7K. It’s totally ok.

Yearly savings so far are 97,957 CHF (cell P57).

Average monthly savings are 9,796 CHF (cell R57). Ouch, below 10K. This is the month we broke few numeric walls in the wrong direction.

Forecast for end of year say 117,548 CHF (cell S57).

Saving rate for October is 51.0% (cell M58). Again, shame on us.

2016 saving rate so far 66.1% (cell P58). Goodbye platinum badge in Mustachian Post’s ranking of European bloggers saving rate indexes.

Target saving rate for End of the Year 70%. We won’t make it though. December’s income would be stellar due to thirteen month and 3 stock vestings together but yearly bonus will be credited in January. 70% is unrealistic. Maybe something like 67-68% is achievable.

Net Worth

This month we crossed the 50% mark! Let’s celebrate!

moneyrain

Net worth at the end of the month is 505,968 EUR (cell M39 or P39). I’m half millionaire! How does it feel? Nothing special.

Delta for October 2016 is +13,313 EUR (cell M40). Better than last month!

Delta Percent October 2016: +2.70% (cell M41).

The logo of this blog changed accordingly:

from

to

riplogo50-60

With another steady jump of +1.33% toward the (cheated) big goal.

Net Worth cumulative 2016 Delta so far: +123,455 EUR (cell P40), just a Euro below a Full Straight in Maxi Yahtzee!

Net Worth cumulative 2016 Delta Percent so far: +32.27% (cell P41).

Forecast end of year 2016 Net Worth: 530K EUR (cell S39), +148K EUR, +38.73%.

Target for End of Year: ok, if the market doesn’t crash dramatically (which is kind of happening) or the Euro doesn’t sink (which is kind of happening too) reaching the Billion Italian Lira (516,456 EUR) may happen in November. Let’s set the ambitious goal of “meeting forecasts”, i.e 530K EUR.

FIRE

Forecast for 100% FIRE: 40 months left, i.e. forecast Fire Date is March 1st 2020, (cell T20). In line with previous data. Last month we were 41 months far from ER.

Current Monthly allowance: 1,405 EUR (+37 EUR, cell T26). It represents how much I could withdraw indefinitely per month (at my desired WR) in case I decided to call myself FI today. This month I created another 37 Euro per month, forever!

Current Withdrawal Rate – Real: 10.96% (+0.11%, cell T29). This represents the WR I need to support current spending regime with my today’s NW. It got worse this month (again) because we increased actual yearly spending forecast more than we increased our NW.

Current Withdrawal Rate – Ideal: 6.59% (-0.18%, cell T32). This represents the WR I need to support my desired spending regime (lower than current, since I plan to retire in Italy and not in Switzerland) with my today’s NW. This went down, since ideal expenses didn’t go up but our NW did. When this number will match the desired WR (cell T11) we’ll be FI 🙂

Next Steps

I moved enough money to my debit card to pay for Mexico trip remaining expenses (hotel and food, I hope that 3.8K CHF will be more than enough) so there’s no need to account for it with my checking account.

Project X just started and I guess till January won’t bring many unexpected expenses. Anyway, for now it can be covered with the ~3K EUR I have on my Italian checking account.

According to the investing tab of my NW spreadsheet I have too much cash sitting on my checking accounts. Apparently, 12K more than the planned “emergency fund”. There are 3 options here:

  • keep cash “because the market is going to crash tomorrow” (which is kind of happening).
  • invest in ETFs as usual.
  • Invest in Pillar 2 and/or Pillar 3 (Swiss pension funds) that I consider similar to bonds.

The Pillar 2&3 decision needs to be taken independently before end of year, so I need to decide whether it’s worth or not. Let’s break this down:

Pillar 2 analysis:
Pillar 2 is employer pension. You and your employer contribute each month to this plan. At Hooli we have a generous plan which is: Hooli contributes 8.5% of my insured salary (yearly salary + bonus) and I contribute a variable amount of my choice. I used to set it at its minimum (4.5%), I switched to maximum (8.5%) starting in 2016. This is pre-tax money, exactly like a 401K for the US friends.

For those who didn’t start contributing to this pillar at legal working age (17 in Switzerland, if I remember correctly) there’s the opportunity to fill in the gap via voluntary tax-free contribution.

Money in the Pillar 2 fund grows via interests. My pension plan currently offers a guaranteed tax-free interest of 1.25%, probably going down to 1% next year.

At age 65 you can withdraw your money as a lump sum or ask for an annuity or a mix of the two. Money withdrawn as a lump sum from pension Pillar 2 will be taxed by a tax bracket which is 20-25% your current tax-bracket.

Withdrawing before age 65 is possible in 3 cases: buying a primary residence (not just a property), starting a company with at least an employee and leaving Switzerland (bingo!).

… but you can’t withdraw voluntary contributions before 3 years. You can’t throw in 100K the day before leaving Switzerland and withdraw it the day after to pay less taxes!

So, the actual cash flow for my Pillar 2 voluntary contribution of X would be:

  • instantly save tax on the top X portion of my taxable income (tax bracket: ~30-35%). Well, not “instantly”, but I’d get back this money roughly after 2 years with 1/1.5% interests.
  • Earn 1% on this amount for the following N years (N>=3) before leaving Switzerland.
  • Pay ~5-6% at withdraw time after N years, probably because leaving the country.

Is it smart to do a buy in? Of which amount?

Well, it depends on what else I could do with the same amount, i.e. what’s the opportunity cost of X. What return should I expect from throwing X into the stock market?

Another factor that matters is: when do I expect to get this money out?

I’ve added a sheet to my NW spreadsheet to do some math:

pillarbuyin

This analysis shows 3 scenarios under few assumptions: tax saving is in the order of 33% (I should move to Kanton Schwyz…), taxes on lump sum at withdrawal time will be 5.3% and interests on Pillar 2 will stay at 1%.

In all three scenarios I compare two investments of value 100: one on Pillar 2 and one on the stock market. In the buy in investment I assume the tax saving (coming cash at the end of year 2) will be invested in the stock market.

Pillar 2 buy in is awesome in the short term thanks to initial big tax savings. Then, unless stock market returns will be asymptotically lower than the Pillar 2 fund’s interest (1%), there will be a moment in the future when the stock investment will perform better than the Pillar 2 buy in.

buyinvsstocks

How far in the future is the break-even? It depends on the market performance, obviously. In the return range considered for this analysis (5-9%), the break-even happens after 4-8 years. It means that if I do a Pillar 2 buy in and expect to take my money back within 4 years (buying a house, leaving Switzerland or hiring YOU, my friend) I’m good to go. If I expect to need this money before the 3 years (end of 2019) or at age 65 I’m better off not doing it.

Ideally, if I plan to get this money back in 2020 I’m better off doing this buy-in thing.

Wait… did I say 2020? When does my forecast say I’m going to hit FIRE?

Bingo! Let’s do it!

How much? Well, the more I invest the lesser percentage I save in taxes. This is because the first CHF I deduct from taxable income would be at my highest tax bracket, probably the second and third CHF too… at one point I’d be deducting money in some lower tax bracket. Ideally I should invest an amount I’m comfortable with that doesn’t fall into a low tax bracket. My target is 20K, like I did last year.

Pillar 3 analysis:
Pillar 3 is an individual volunteer pension contribution. It’s pre-tax and it’s capped at a fixed amount per year, which this year is 6,768 CHF. It’s been at ~6.7K since I moved to Switzerland. While Pillar 2 plan is employer driven (you can’t pick one of your choice), Pillar 3 is free market and you can go talking with banks and other financial institutions to check their Pillar 3 investment options. By law, they’re not allowed to offer investments that have more than X% on stocks… I’m not sure about it, need to investigate more.

Same rules apply for withdrawing the money: either leaving Switzerland, buying a house or starting a company (or reaching age 65). But there’s no 3 years waiting period after a buy in though.

That alone would make investing in Pillar 3 a better option for your first 6.7K CHF. My problem with Pillar 3 is that I opened a shitty one with my bank. It all happened back in 2012, on my second day in Switzerland, and I had no time to investigate more. Since I’m lazy, I kept investing 6.7K per year in 2013, 2014 and 2015 and now my account is ~21K (cell P15). Interests on this account are ridiculously low. Something like 0.25%.

Either I find a better option for Pillar 3 and invest there 6.7K (and the rest into Pillar 2) or I invest the whole 20K into Pillar 2. I’ve seen some interesting Pillar 3 funds, the problem is that they have high TER and they are mostly based on the Swiss stock market. Not exactly the hottest one.

I think there’s enough on this post about Swiss Pension system that it deserves its own post asap.

Action Item: explore Pillar 3 opportunities and take final buy-ins decision.

Ok, what about investing more into stocks/ETFs?

I think I need to first come up with a better plan and a better balance in my portfolio: I need to write my IPS first. I expect an amazing cash flow in December (a lot of stocks and thirteen month) and January (yearly company bonus, at least 15% of yearly salary, i.e. at least 22.5K gross). I want to invest heavily in January, according to my “coming soon” IPS.

Blogging Update

You still here? I can’t believe… we’re getting close to 3000 words and you’re still here with me!

Ok, this blogging thing is really one the most fun and useful activities I’ve done this year! I’ve met new friends, had skype calls with them, got “suggestions” (actually got scolded) on my Asset Allocation, had a guest post and an “interview“, joined a Swiss FIRE forum and fought against facebook

I’m so behind with reading new blog posts. I have so many post ideas and so little time to actually write them down.

But…

But…

…a new project is coming! A FIRE podcast is coming! It will be in both Italian and English, hosted by me and Andrea (incassaforte.com). We don’t have an E.T.A. but we’re experimenting with technologies, collecting ideas, looking for the podcast name and thinking about few guest star we want to invite!

More on this will follow 🙂

And I know I’m behind with the “investment” series. I hope to finish my ETF 101 post in November. The draft is very very veeeeery long and November is so short (Mexico, we’re coming!).

That’s all for this month!

How was your October?