The State, retirement insurance and the annuitant

Nothing encourages us to work, I have always said it. It is obvious when we have a job that we do not like and/or that spills over into our private life, but it is even obvious when we enjoy our activity. Why? Because dependent lucrative activity is the one that is most plundered, not only by employers, but also by the State.

When you work, you create value. Some hide in the crowd to slack off and others talk nonsense, but most of us produce wealth. Thanks to this, companies make profits, pay their employees, their shareholders, their suppliers and the State. Workers are also taxed on their income, at source for social security, the rest during the annual tax return. They also pay a consumption tax, in the form of VAT, which is an antisocial tax because the lower classes have a much larger share of expenses compared to income than the privileged classes.

So most of the value you create doesn't go into your pocket, but into those of your boss and the state. Paradoxically, work is expensive. In addition to the business expenses, taxes and social security eat up a significant portion of your income. Your money is circulating everywhere around you, but very little ends up remaining in your piggy bank.

Social insurances that concern old-age provision are not only the most expensive, but also the most obscure and therefore the most misunderstood by the general public. Collected at source, they remove all control and oversight from their beneficiaries. The rest of this article focuses in particular on the case of Switzerland. The many French, Belgian and Quebec readers of this blog will nevertheless be able to draw inspiration from it because the tendency to heavily tax work is not a Swiss specificity. Quite the contrary.

Switzerland has a pension insurance system made up of three pillars, one compulsory and mutually supportive between generations (AVS), the other a little more flexible and rather individual (LPP), the last freely consented and totally individual. This is a very approximate description of the system, but it gives a good general idea. It is sufficient for what concerns us. Only the first two pillars have a character of social insurance directly deducted from income.

The results of these insurance companies have been poor for many years, which has a significant impact on their retirement benefits. This tends to make part of the population wary, and rightly so. How can one justify a minimum interest rate of only 1.5% on the second pillar? Any individual investor with a bit of common sense can obtain a best performance.

Another point that is very poorly known by the general public is that compulsory old age insurance (AVS), disability insurance (AI) and loss of earnings for military service and maternity (APG) are taxed very heavily on income (5.15%), while they are taxed much less for people who do not exercise a gainful activity, such as annuitants. For the latter, the wealth and income acquired in the form of an annuity are decisive for the calculation of contributions. In particular, wealth is considered to include savings books, securities and real estate. On the other hand, and this is where it becomes interesting for us, income from wealth is not part of the income acquired in the form of an annuity!

Not only is this good news for a dividend-oriented investor, but it is even better for those looking for growing dividends. Indeed, with this last method, we manage to obtain returns compared to the purchase cost that can reach 10% in about ten years, and even much more over time. A passive income of this caliber, not subject to social security, is still a big plus compared to a hard-earned salary at work, deducted from 5,15% at source to finance the retirement (of others)!

Ok, you might say, that's all well and good, but wealth is still subject to social security contributions in this case. The official AVS document concerning people without gainful employment gives us the amounts to be paid according to their assets. Even if you live on an impressive fortune with an insignificant return, it remains more than affordable. If you follow a strategy of increasing dividends, and your wealth increases at the same time as your income, you come out of it very cheaply. I made a small estimate for my own situation and based on my income objectives As a pensioner, I should only pay half of what is currently deducted from my salary..

How does this happen? Where does this injustice come from compared to the poor workers who sweat body and soul to earn every extra franc? It all lies in the ability to save. It is the same antisocial mechanism as VAT. Let me explain. To become a rentier, unless you win the jackpot, you have to put aside a significant part of your income. The less you spend, the more money you can put aside, the more wealth increases and the more income from this fortune increases. This is the first Kiss Cool effect.

Where it gets interesting is that the less you spend, the less you need to live not only today, but also tomorrow. In other words, the part you save today will no longer be necessary when you become an annuitant. You will therefore be able to living on a lower income, therefore a capital to generate this flow of money which is just as much. Depending on your savings capacity, you will therefore receive an income as an annuitant which is 10, 20, 30... or even 50% lower than that which you received as an active person. The State will therefore consider you as less interesting, both fiscally and on the social security side.

This is why a rentier is less robbed. The added value he generates is not retained by an employer. He also does not spend his money to acquire income. Finally, the State does not tax him as much as a worker. My E-Book will give you more details not only on optimizing your expenses, such as taxes, social security and professional expenses, but above all on the importance of savings capacity.