Financial \\ How’s it going in Switzerland??

This is part of a multi-post series about how it has been to move to Switzerland. See the intro post here for all of the others in the series.

When you move countries, a lot of laws that apply to you change. This includes financial laws. It’s a lot to learn, but here is what I’ve gathered in a short amount of time. I am not a tax or financial professional. Please seek independent financial advice from a qualified professional.

Income hit

We knew that with my husband not working at first, our combined income would go down for the year. We budgeted and decided we can handle this income hit. So, when we announced that we were moving out of the country, a lot of immigrants to America had volunteered that essentially there is no way we could make the same amount of money outside of America than inside. It was an interesting pattern.

Our income hasn’t recovered yet because my husband is still exploring the world ;). But, maybe in 2 years, I’ll be able to determine if those words of warning were true or not. So far, they are.

Reporting Taxes

Switzerland is different than most European countries. It has a relatively low tax rate. Swiss residents usually have a 15–25% effective tax rate depending on the canton (state) and their income level. Additionally, Switzerland has a tax treaty with the USA to minimize double taxation. So, it looks like we will pay comparable taxes to what we were used to in the USA. But, we still have to report our income to two different countries. We have no idea how this will actually work out. We know that we will have to fill out 2 tax reports, one to Switzerland and one to USA. If filling out 1 tax form is not fun, then I imagine having to do two taxes will be double not fun. To be continued.

Convenience investing hit

When we were in California, we had used robo-investment services, such as Betterment and Wealthfront. Both of these were great services. They determine your risk threshold based on a survey. And from that, they can tell what mix of ETFs they should buy for you and what are the expected investment returns (higher risk is related to higher mean and variance in expected return). They also do things like tax-loss-harvesting, where they buy and sell ETFs to minimize tax liability. These robo-investors do this algorithmically, and at a low cost. If it’s available to you, I suggest you invest with them.

Unfortunately, as residents of Switzerland, we could not keep an account with either of these services. So, we found a financial advisor that basically has the same methodology, but additionally specializes in Americans and Swiss living in the others’ country. Although, we are very happy with their services, it was just easier to move money into an account and trust that Wealthfront or Betterment will automatically trade whatever would maximize your return.

Retirement saving

A lot of the laws and details surrounding retirement accounts are hard to remember. Please keep in mind you should always seek advice of a qualified professional.

Generally for independent retirement savings, Americans have the ability to invest in a 401k and an IRA. There are a lot of choices you can make with these retirement vessels, but the main idea is that you have some choices between which types of investments you do. I have tended towards investing in the stock market. With this mix, I aim for ~4–5% return on investment. Because the money is mostly in stocks, none of the money in the account is guaranteed. If the stock market crashes, I assume my balance will be greatly affected as well. The Swiss system has something called Pillar 2. IIRC Pillar 2 requires your company to invest in it, as long as you invest some amount of your income as well. The Pillar 2 money goes into an employee fund, and has a guaranteed return of ~1–2%. The Pillar 2 plan doesn’t allow someone to consent to invest in riskier things like stocks. This means that your money has near 0 risk, but it doesn’t have the ability to go up similarly fast as the US retirement accounts either. So, the expected return on investment in the pension plan is very little. Furthermore, Pillar 2 is not a employer plan by IRS’ standards. So, the good news is that you can still contribute to your IRA every year while you’re living in Switzerland. But, the bad news is that you are taxed on your employer’s and your contribution to your Pillar 2 as income even though you can’t access it as you would a normal investment account.

Illustration of the expected difference of a constant cumulative interest accrual on the same investment over 30 years. To illustrate the risk difference between a guaranteed 1% interest and an expected 4% interest, there should be error bars, but I can’t be asked to add them.

Pension plans, such as Social Security in the US and Pillar 1 in Switzerland, are not guaranteed to exist when I age into the system. The tax you pay into the Swiss Pillar 1 plan also pays for other things than only pension for retired people. So, I’m not sure if comparing them will make much sense. Again, maybe in a couple years this might be clearer for me, and I can talk about it in a later post.

Overall, I think the investing culture in Switzerland tends to lean more conservative. What that means is that the expected accrued interest on my retirement accounts in Switzerland is less than what I expect my US retirement accounts can do. And because right now I have less options to contribute to my US retirement accounts, I expect right now I am not saving as aggressively for retirement while living here.

This was a lot to learn and prepare for the move in 2 months. If I had known how complicated this subject was, I would have allowed for more time. So, if you have a semi-complicated financial situation, keep this in mind, and plan accordingly.

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