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ACA Zurich Town Hall

To view this presentation in PDF format, click here.

Retirement Planning for Americans in Switzerland

ACA Town Hall Evening

Zurich

Jonathan Lachowitz

Financial Planner | Investment Advisor

September 21, 2016

This presentation is not meant as legal, tax or financial advice to any individual. You are strongly recommended to seek the advice of a professional who understands your specific circumstances before relying on any of the information in this presentation. There may be mistakes and regulations may change or not apply in some circumstances. The presentation may be circulated but should be appropriately cited if used in a professional setting.

IRS Circular 230 Disclosure: Any tax advice in this communication is not intended or written by the author to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding penalties that may be imposed on any taxpayer.

Introduction

Jonathan Lachowitz

  • Board Member ACA

  • Financial Planner & Investment Advisor

  • Certified Financial Planner ™ - US & CH

  • Founder of White Lighthouse Investment Management in Lausanne & Lexington, MA

  • On the web at https://www.white-lighthouse.com/

  • Writing on personal finance for Wall Street Journal – Expat

Retirement Planning

  1. Saving – How much do I need?

  2. 4 Pillars

  3. Investing – before and after retirement date

  4. Key retirement questions:

    1. When to retire

    2. Where to retire

    3. Working in retirement

  5. Withdrawing from 2nd Pillars

How Much Do I Need?

Driving Factors

  1. Life expectancy

  2. Taxes

  3. Inflation

  4. Investment return

  5. Spending needs

  6. Percent covered by pension (government & private/company)

Try our simple calculator: https://www.white-lighthouse.com/resources

Is leaving gifts or inheritance important?

Saving – Accumulation

The 4 Pillars of the 3 Pillar System

  1. Social Security – Pillar 1

  2. Company Pension – Pillar 2

  3. 3rd Pillar – Great for financial companies

  4. Private savings & investment – 4th Pillar

  5. The 3 Pillar system has some impending changes…

US And Swiss Social Security

  • Totalization Agreement

  • US – Medicare

  • Treatment of Spouses – Benefits

  • Contributing to both systems?

  • Windfall Elimination Provision

2nd Pillar – Contributions

  • Mandatory employee and employer – proper US reporting: 8938, FBAR

  • Voluntary: Can lower Swiss taxes but can also trigger grantor trust rules…You want to avoid this! (3520A, PFICs, etc…)

  • Does lowering Swiss taxes increase your US taxes?

  • Avoiding double taxation: Are you tracking your US tax basis?

  • Investment choices?

  • Currency risk, inflation risk

  • Can’t use FEIE for employer contribution – 911(b)(1)(B)(iii)

  • 2nd Pillar – Libre Passage – Distributions from a foreign pension plan, some Swiss pensions are changing their rules…

3rd Pillars

  • 2nd Pillars but worse

  • US tax treatment

  • PFICs

  • Investment choices

  • Are US compliant options available?

  • How about 2nd Pillar Libre Passage?

US IRA Accounts

  • Can lower/defer US taxes – Not Swiss taxes

  • No income limitation if you don’t contribute to US qualified plan

  • Report properly in the US & Switzerland

  • Investment choices

Financial Advice & Investing

  • Traditional advice for an employee in Switzerland may not meet expectations for Americans in Switzerland

  • At traditional retirement age you still need to prepare for the long-term

  • Hard to save – Easy to make costly mistakes

Retirement Savings Does Not Have To Be In A “Retirement” Account

  • Maximum flexibility

  • Control over fees

  • Control over investments

  • Control over currency

  • More potential risk – but this can be a good thing – especially with buy and hold

Difficult To Find A Competent Advisor

Most (> than 90%) of financial “professionals” sell their company’s financial products and put clients into a pre-determined basket of investments to maximize bank profits and minimize time spent with clients and truly advising clients.

Investment

US or Swiss Institutions

  • Cost

  • SEC Registration – What does that mean?

  • Advisor Qualifications

  • Product Choice

  • Tax Reporting (in both countries)

Where to save for retirement?

  • Retirement account

    • US, Switzerland, offshore

  • Investment account

  • Savings account

  • You will have the biggest impact – saving, investing and avoiding large mistakes

Investments

Common mistakes:

  • Use of PFICs

  • Tax inefficiency: What types of investments in which accounts?

  • Muni-bonds?

  • Long-term commitment: High fees, low liquidity

  • “Offshore” plans

Major Problems with Swiss Retirement System Especially for Americans

  • Does not encourage real home ownership (ownership by bank but with personal risk or renting and subject to interest rate and currency risk)

  • 3 Pillar system is not well-diversified depends too much on Swiss franc bonds and not well-diversified on stocks

  • Saving in the 2nd and 3rd Pillar can be tax inefficient for Americans

  • Swiss company pensions & social security will run into problems in the future with negative yields on bonds, narrow equity choices, high fees and overpriced real estate – diversification is critical

  • The system is great for encouraging savings; but not for investment

  • Many Swiss (and non Swiss) decide to retire elsewhere

Retirement Planning Questions For Americans In Switzerland – Should I Stay (In Switzerland) Or Should I Go (Back To The US Or Elsewhere)?

  1. Often a lifestyle and sometimes a financial decision

  2. Crossing borders presents risks and opportunities

  3. Residing in two countries – enjoyable, complicated, expensive

  4. Cost of Living: Matching income to expenses – currency

  5. Working in retirement

  6. Tax system

  7. Health benefits

  8. Language – Especially with service providers

Withdrawals

2nd Pillar - Distributions

  • Lump Sum or Annuity: Or Both?

    • Permanently leaving the country

    • Statutory retirement age

    • Leaving employment – Invest in business

    • Buying a home

    • Death

  • Taxable in the US & CH

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