Financial freedom definition
There are various descriptions, but our financial freedom definition is as follows: If your passive income streams cover your living expenses, you are financially free.
It depends very much on how high your personal expenses and income are. Passive income is income for which you no longer have to actively spend your time. Dividends, rental income, or a fully automated online business would be examples of sources of your passive income. Passive income.Â
You live as a digital nomad in Asia or South America and benefit from low living costs? (This is also called geo-arbitrage). Then CHF 1,000 per month in passive income may be enough for you to be financially free. Even a medium stock portfolio can generate this amount of dividends and make you financially free.
But if you live in Zurich in a 5 room apartment with a lake view and are financially responsible for your family, you will have to do "a little" more groundwork for your financial freedom.
In the introduction we had used the term FIRE mentioned. FIRE comes from the English and is the abbreviation for Financial Independence, Retire Early. In other words: Financial independence and early retirement. The FIRE movement has some followers who approach their goal in various ways. Many followers of the FIRE movement save extremely and sometimes only treat themselves to the bare necessities in order to achieve their goal of financial freedom.
You can achieve financial freedom in many different ways. Don't worry, you don't have to live ascetically and indulge in every luxury. Let's now take a look at how this works.
Super calculator!!! 2 questions:
1) How is future AHV calculated for early retirement?
2) If I sell my home in 10 years, how should I take this into account in the calculator?
I'm glad you like it, Marius 🙂
1) AHV for early retirement
There are two effects that can lower the pension:
a) Gaps in contributions: If you stop working earlier, you will continue to work until
reference age - as a «non-employed person».
Minimum contribution CHF 530/year, depending on assets and pension income
up to CHF 26,500/year. If you pay this well, there is no gap. Forgets
the registration with the compensation office, missing contribution years, each
missing year costs around 2.3% pension.
b) Lower average income: Even without a contribution gap
the pension slightly because the years without income reduce the average
pull down.
Concrete calculation:
- Order a free pension forecast calculation from your
Compensation fund (form 318.282)
- In the Schwiizerfranke calculator, simply enter the estimated value in the slider
«Set »Expected pension from 65" correspondingly lower
2) Home sale in 10 years
The computer does not recognise a sales event directly. Pragmatic:
- Estimate net proceeds: Sales price minus residual mortgage minus
Property gains tax minus sales costs
- Spread the amount over the 10 years until the sale
and incorporate it as an additional savings instalment (simplified but effective)
- Or calculate two scenarios: One without the sale, one with the
Proceeds already in custody assets today. The truth is
in between.
Important: After the sale, you will need living space again. If you then
to rent, the monthly expenses usually increase significantly.
You have to include this in the «Monthly expenses» slider, otherwise
your FIRE date is too optimistic.
Kind regards
Eric
Good day
Played with the computer a bit.
But did I notice correctly that the calculator no longer takes into account the invested capital during the entire withdrawal period? That's not really the case.
Unless you sell all your securities and put all your assets in a bank account, which doesn't make sense either.
Greetings Philipp
Hello Philipp,
Correct, no further growth was deliberately built in. Particularly in the short term (e.g. 0-5 years), the required funds should no longer be exposed to anal risk.
For money that is not needed in the longer term and could therefore still be invested, this calculator offers a kind of "reserve", as it calculates rather conservatively.
Update 2026: The calculator now has a return setting for the withdrawal phase (default 4%) and calculates year by year. The safety buffer now comes from 3 years« expenditure at the end of the pre-retirement phase in the event of early retirement - no longer from »no growth".
Cool FIRE calculator. The video is displayed as private and cannot be played back.
In principle, it is correct that Thesauerierende Anlagen automate reinvestment and compound interest. This would be a classic buy and hold strategy. The automatic reinvestment eliminates the reinvestment costs, trading fees and brokerage fees, etc.. Also correct!
The disadvantage is that you do not necessarily notice if an investment underperforms during the year or over several years, because the market value does not necessarily reflect the return or the value and operating performance of the company. With distributing shares (ETFs/funds) you have corresponding annual to monthly feedback. In addition, you can compare the performance of the companies more easily.
You can use the dividend income for reinvestment, investment reserves and rebalancing. You have to check and reinvest regularly anyway. If a stock goes down, you don't lose everything and have realised at least part of the ROI over the years. Ok, until reinvestment you have only a measly savings interest rate for a short period of time, but high availability. With reinvestment you do not have the above and in the Woerst case you have to realise a high book loss (or Happy a high profit of more than 5% per year on average)!
Those who, like me, bought UBS shares at 34 as a corpse in the cellar are glad that dividends and capital repayments will reduce the accumulated book loss and perhaps the share will rise again to over 34 at some point.
According to my logic, accumulating shares (ETFs/funds) that yield 5% net return (compound interest) per year (IK*(1+interest)^years) should be worth at least 265% after 20 years and 703% after 40 years. Is that the case in each case?
I have accumulation funds, also in pillar 3a, as corpses in the custody account that do not and will never achieve this.
The reason here is primarily the burden of commission, redemption, management and custody fees, as well as entry timing and setbacks.
What is annoying here is that many Swiss banks at best allow the transfer of their own funds into private assets and foreign funds have to be sold. The time of sale (realisation) can then fall in an unfavourable price phase with price losses. But another construction site!
It is not very intelligent to invest only in different share categories, but depending on your age, investment strategy and need for security, you can also invest in interest-bearing securities / daily allowances, pension funds or real estate, etc., which (can) generate regular income for you and cover the budget. It is therefore necessary to consider the overall context and the income from shares / securities investments, whether dividends or dynamic withdrawals, is a component of this!
When you are young, you can invest in high-risk growth stocks with high fluctuations. Investors from the age of 45 / 50 should rather think about realising profits and shifting to value and dividend stocks, pension annuities, interest-bearing securities that provide a regular secure basic income.
Of course, if you have managed to accumulate your 3 million in shares by the time you are 40, you can easily absorb the risk that a market correction of 50% will occur in your pension fund and still withdraw dynamically and remain risky.
However, it must be taken into account that, depending on the bank/securities, redemption commissions and fees may be incurred, which again reduce the return.
The average investor over the age of 50 who has perhaps 500,000 in free assets, 100,000 in securities investments and a condominium is probably better served with a high dividend strategy, interest-bearing securities and rental income rather than dynamic withdrawal. In addition, and above all, with a custodian bank that charges no (or very low) custody fees and where investments generate few fees / brokerage / trading commissions and no emission and redemption fees as well as low administration costs! A number of online solutions and a look abroad are very worthwhile, as every cent that is lost reduces the result.