The GL guide to managing your finances is designed for people who have recently moved to the Lake Geneva region, as well as those who have lived here for years but know the time has come to reassess their financial plans.
by Sarah Cumberland
Financial goals and priorities vary throughout life as our situations change. Are you struggling to save since moving to the Lake Geneva area?
Is your tax situation so complex it makes your head ache? Are you maximizing the wealth you have accumulated?
Whatever the state of your finances, it’s important to start thinking about them and to actively seek knowledge and advice. The right information can make a huge difference in regard to such matters as your tax liability and your pension entitlements.
III. The retired couple
Maria and John are due to retire. Their situation is somewhat complex: Maria is Swedish, and John is Canadian although he hasn’t lived there since he was young. They have spent the past 30 years living and working in several countries including the US, UK and Switzerland. They own a house in Switzerland but are considering moving to France for their retirement.
It is very important for Maria and John to understand both the French and Swiss tax systems, investment regulations and their pension entitlements from the US, UK and Switzerland. Their main aim should be for maximum tax efficiency while at the same time meeting their investment objectives.
Maria and John have multiple pensions, and they need to consider how they will access these funds. They may decide to leave their pension money where it is, although this is usually not advised as an investment strategy. Most pension funds are extremely conservative, with typical growth that barely keeps up with real inflation.
Recent significant changes to UK pensions, called the “A day” changes, provide alternatives to taking a pension as an annuity. They may allow John to transfer his pension funds outside the UK as well as allow improved access to the pension fund.
Since they may retire in France, Maria and John should investigate channeling some of their assets into a French investment vehicle called an assurance vie which acts like an insurance bond. If Maria and John invest in it prior to retiring, the entire sum will not be taxable under current French inheritance tax laws.
If they decide to retire in Switzerland, Maria and John will need to consider 2006 changes to pension fund law that could have an impact on their choice of taking retirement benefits in a lump sum or as monthly payments. It’s wise to start by checking with a Swiss pension fund’s own restrictions, then get professional advice for this key decision because the right choice depends very much on individual situations.
IV. The young single
Dave is a 28-year-old New Zealander who has spent the past year settling into a new job in Geneva and spending a large chunk of his disposable income on ski trips and going to nightclubs. While he knows that he should be trying to save some money, like many young singles on a good salary, he is too busy enjoying life.
The first step Dave should take towards better money management is to keep track of what he spends in a single month. It might come as a surprise to him to add up how much he spends on non-necessities.
Money-net.ch has a suggested breakdown of monthly expenses for a single person living in Switzerland.
“Saving often means giving up habits which one has grown very fond of, and then restricting oneself in certain areas,” writes budget advisor Ursina Kasper Hartmann for the Cantonal Bank of Bern’s web site.
Discretionary expenditure is likely to get out of control unless Dave allocates specific (and realistic!) monthly amounts in his budget for clothing, gifts, eating out, hobbies, holidays and large non-essential purchases.
Dave, with a Swiss B permit, is taxed at source, but his friends who are not should be aware that in the past, cantons were more relaxed about monthly estimated tax installments than they are now. Geneva expects March to December payments, and Vaud in 2007 moved from 9 to 12 installments a year. Halfway through the following year the final bill arrives and it is best to have money set aside in case of under-payment.
Dave should open a savings account and once his savings start to accumulate he should consider transferring them into a higher-earning investment vehicle. He may need financial advice which will take into consideration his future plans and his worldwide tax situation.
He is at the ideal stage in life to put his savings to work: he has neither financial commitments nor dependents. It seems a long way off, but he should make the most of this opportunity to ensure his future standard of living.
“Delaying taking action is the biggest problem for most people,” says Chris Marriott.
For Dave, who has a little over 25 years to go to retirement, a delay of five years will mean that for the remaining 20 years he will need to save at twice the level he would have, had he started five years earlier.
Sarah Cumberland is an Australian journalist who has more than 15 years’ experience writing and editing a range of consumer and industry magazines. In Australia, she was editor of national magazines including Dynamic Small Business Magazine (for entrepreneurs), Nothing Ventured, Nothing Gained (venture capital industry) and, most recently, The Project.
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