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Glossary

Sixty terms from Swiss pensions, taxes, investing and FIRE, each in one sentence, then in a little more detail.

1

13th AHV pension: An extra monthly AHV old-age pension paid once a year, every December, from 2026.

4 % rule: A rule of thumb that you can spend 4 % of your savings in year one and adjust for inflation, and the money has historically lasted 30 years.

Affordability (Tragbarkeit): The bank test of whether you can carry a mortgage: housing costs at a notional interest rate must stay below about a third of gross income.
AHV (old-age and survivors’ insurance): The first pillar of the Swiss pension system, paying a pension from the reference age based on income and contribution years.
AHV contribution gap: A year without the required AHV contributions, which reduces your pension by about 1/44 for life.
AHV contributions for non-employed people: AHV contributions paid by people without (enough) work income, based on wealth and pension income.
AHV deferral: Starting the AHV old-age pension after the reference age, for one to five years, with a lifelong supplement.
AHV early draw: Starting the AHV old-age pension before the reference age, from 63, with a lifelong reduction.
Asset allocation: How your investments are split between shares, bonds and cash.

Barista FIRE: Leaving full-time work once your savings cover most of your spending, and earning the rest from part-time work.
Bridge period: The years between stopping work and the start of pensions and locked savings, paid from accessible money.
BVG (pension fund): The second pillar, the occupational pension fund that employees and employers pay into, paid out as a pension, a lump sum or both.

Capital withdrawal tax: The separate, reduced tax on lump sums from the pension fund, vested benefits and Pillar 3a.
Coast FIRE: The point where your savings could grow, without new contributions, into the amount you need at retirement.
Compensation office (Ausgleichskasse): The office that collects AHV contributions and pays pensions.
Compound interest: Earning returns on earlier returns, so growth speeds up over time.
Conversion rate: The percentage of your pension-fund balance paid each year as a lifelong pension.
Coordination deduction: The amount subtracted from your salary to find the coordinated salary on which mandatory pension-fund contributions are paid.

Diversification: Spreading money across many companies, countries and asset types to reduce the risk of any single loss.
Dividend: Part of a company’s profit paid out to shareholders.
Double taxation agreement: A treaty between two countries that decides which one taxes which income, so you are not taxed twice.
Downshifting: Choosing less work and a simpler life before full independence.
Drawdown: A fall in value from a previous high, for example a 30 % drop in the stock market.

Early withdrawal for a home (WEF): Using pension-fund or 3a money to buy a home you live in.
Emergency fund: Cash for unexpected costs or lost income, usually three to six months of essential spending, kept apart from investments.
ETF: An exchange-traded fund: an index fund you buy and sell on the stock exchange like a share.

Fat FIRE: Financial independence with a generous budget, which needs a larger pot and usually more years of work.
FI number: The savings you need so that your investments can cover your spending for the rest of your life.
FIRE: Financial independence, retire early. Saving and investing until your savings can pay for your life, so work becomes optional.

Geo-arbitrage: Earning or saving in a high-cost country and living in a cheaper one.
Guardrails: A withdrawal method that spends a little less after bad years and a little more after good ones, within set limits.

Health insurance (KVG): Mandatory basic health insurance for everyone living in Switzerland, paid per person with no employer share.

Imputed rental value: A notional rent that homeowners add to taxable income for the home they live in.
Index fund: A fund that tracks a market index, such as world shares, instead of picking stocks, usually at low cost.
Inflation: The general rise in prices, which reduces what a franc buys over time.

Lean FIRE: Financial independence on a deliberately modest budget, which means a smaller pot and an earlier date.
Lump sum (capital withdrawal): Taking pension-fund or 3a money as a one-off payment instead of a pension.

Marginal tax rate: The tax you pay on your last franc of income, and therefore what you save on each deductible franc.
Monte Carlo simulation: Running a plan thousands of times with random market returns to see how often it succeeds.

Net worth: Everything you own minus everything you owe.
Nominal return: The return before inflation, as fund reports and index providers usually quote it.

Pension certificate (Vorsorgeausweis): The yearly statement from your pension fund showing your balance, credits, projected pension and buy-in potential.
Pension fund buy-in: A voluntary payment into your pension fund to close a gap, deductible from taxable income.
Pension-fund pension: A lifelong monthly payment from the pension fund, set by the balance and the conversion rate.
Pillar 3a: Tax-advantaged private pension savings: contributions are deducted from taxable income, withdrawals are taxed separately at a reduced rate.
Pillar 3b: Free private savings and investments outside the pension system, with no lock-up and, in most cantons, no special tax break.

Real return: The return after inflation: how much your buying power grows.
Rebalancing: Bringing your portfolio back to its target mix, for example 80 % shares and 20 % bonds, after markets move.
Reference age: The AHV age at which the regular old-age pension starts: 65, with a transition for women born 1961 to 1963.

Safe withdrawal rate: The share of your savings you can spend in the first year of retirement, then adjust for inflation, without running out.
Savings rate: The share of your net income that you save and invest each month.
Sequence-of-returns risk: The risk that bad market years early in retirement do lasting damage, because you sell investments at low prices to live.
Spend-down plan: Spending your savings on purpose over a chosen horizon instead of living only on returns.

Tax residence: The country where you are taxed on your worldwide income, usually where you live and have your main ties.
TER (total expense ratio): The yearly cost of a fund as a percentage of the amount invested, deducted from its returns.
Three pillars: The Swiss pension system: AHV (state), BVG (occupational) and private savings (3a and 3b).

Vested benefits: Your pension-fund money when you are not employed, held in a vested-benefits account or policy until you start a new job or retire.
Volatility: How much an investment’s value swings from year to year.

Wealth tax: A yearly cantonal and communal tax on net wealth above an allowance.
Withholding tax: Tax deducted at source from dividends and interest, such as the 35 % Swiss withholding tax, partly reclaimable.