Pension vs Lump Sum: The Breakeven Calculator for Your Retirement
February 26, 2026
9 min read
arvy Pension Calculator
Pension Annuity vs. Lump Sum: The Breakeven Calculator for Your Retirement
A decision you make exactly once — and can never reverse. Calculate the breakeven for your Swiss pension fund in 30 seconds, including conversion rate, capital withdrawal tax by canton, and investment return.
In 30 seconds — what you need to know
- Default scenario: CHF 400,000 pension balance, 5.4% conversion rate, Zürich (8% capital tax). Monthly pension: CHF 1,800. Net lump sum: CHF 368,000. Breakeven: 17 years.
- BVG conversion rate 6.8% only applies to the mandatory portion. Most pension funds apply 5.0–5.8% to the total balance via blended calculation with the supra-mandatory portion.
- Capital withdrawal tax varies massively by canton: Schwyz/Zug ~4%, Basel-Stadt ~9%. On CHF 400,000 that's CHF 16,000–36,000. Tax is levied once, separately, at a reduced rate.
- Mixed withdrawal combines both: e.g. 50% pension (security) + 50% lump sum (flexibility, inheritability). Most pension funds allow this with 3–6 months' notice.
- Life expectancy matters: a 65-year-old Swiss man lives ~20 more years on average, a woman ~22 years (BFS). Live longer than the breakeven, pension wins. Die earlier, lump sum has gone to heirs.
On this page
At retirement, you face a decision you make exactly once and can never reverse: take your pension fund balance as a monthly annuity, withdraw it as a lump sum, or split it? This calculator shows your breakeven for the specific scenario — verified against current Swiss data.
Pension fund balance
Your total pension fund balance (mandatory + supra-mandatory). Found on your pension certificate. The higher the balance, the more important this decision becomes. → Glossary: Pension Fund
CHF 100,000CHF 1,200,000
Conversion rate
The conversion rate determines your annual pension: balance × rate = pension. The BVG minimum (6.8%) applies only to the mandatory portion. Many funds apply 5.0-5.8% to the total balance. A lower rate makes the lump sum more attractive. Check your pension certificate. → Glossary: Conversion Rate
4%6.8%
BVG minimum: 6.8%. Many funds: 5.0–5.8%
Investment return (lump sum)
The expected return if you invest the capital yourself. Conservative (bonds): 2-3%. Mixed: 3-5%. Equity-oriented: 5-7%. Higher returns make the lump sum more attractive — but also riskier. → Compound Interest Calculator
1%8%
Annual withdrawal rate
How much you withdraw annually (as % of starting capital). The 4% rule (Trinity Study) is considered sustainable over 30 years. At 3% you are safer, at 5% you need higher returns. → FIRE Calculator
2%6%
Canton (capital withdrawal tax)
Invest your capital wisely. With arvy.
If you choose the lump sum, you need a plan. With arvy, you invest in quality companies — together with founders who put their own money in the same strategy.
⚠ Simplified estimate. Not financial, tax, or pension advice. Values vary by pension fund regulations, canton, municipality, denomination, and marital status. Survivor's pension (60%) and mixed withdrawal not modelled. Cantonal tax values are approximations for CHF 400,000 — actual tax is progressive. arvy is a FINMA-regulated asset manager with a KAG licence. Imprint
How the calculator works
The breakeven is a nominal comparison: how many years until the monthly pension payments add up to the net lump sum after tax? With default values (CHF 400,000 × 5.4% conversion rate = CHF 21,600 annual pension; net lump sum after 8% Zürich tax = CHF 368,000), the breakeven is 17 years. Anyone retiring at 65 and living to 82 has received approximately equal amounts from both — before adjusting for inflation and investment return.
Methodology — what the calculator assumes
Pension: Balance × conversion rate = annual gross pension (lifelong, not indexed). Lump sum: Balance minus capital withdrawal tax (nominal cantonal approximation for CHF 400,000). Capital scenario: Net capital grows annually by the investment return, reduced by withdrawals (% of starting capital, constant nominal). What's not modelled: inflation, taxes on pension income, survivor's pension (typically 60%), mixed withdrawal, AHV. For full personal advice: speak to your pension fund.
The conversion rate explained — and why most funds apply below 6.8%
The conversion rate determines how much annual pension you get per franc of balance. The BVG minimum is 6.8% — but only for the mandatory portion (insured salary up to CHF 88,200). Most pension funds use a blended calculation with the supra-mandatory portion, which covers salary above CHF 88,200. Since the supra-mandatory rate is freely settable, many funds reduce it to 4.5-5.5%, dragging the blended rate down to 5.0-5.8%.
| Conversion rate scenario | On CHF 400,000 | Monthly pension | Breakeven vs. lump sum |
|---|---|---|---|
| BVG minimum 6.8% | CHF 27,200/year | CHF 2,267 | ~13.5 years |
| Typical blended 5.4% | CHF 21,600/year | CHF 1,800 | ~17 years |
| Low rate 5.0% | CHF 20,000/year | CHF 1,667 | ~18.4 years |
| Very low 4.5% | CHF 18,000/year | CHF 1,500 | ~20.4 years |
Calculation with net capital after 8% withdrawal tax (Zürich approximation). The lower the conversion rate, the more attractive the lump sum becomes — because the pension is proportionally smaller. Source: arvy calculation.
Trend: declining conversion rates
The conversion rate has been under structural pressure since 2003. Main reasons: longer life expectancy (more pension years), lower capital market returns, demographic shift. The 2020 pension reform attempted to lower the BVG rate to 6.0% — rejected by referendum. The 2024 BVG reform was also rejected. Politically the rate stays fixed at 6.8% — but most funds circumvent this via the supra-mandatory portion.
Capital withdrawal tax — the big cantonal difference
Capital withdrawal tax is levied once, separately from regular income, at a reduced rate (typically 1/5 to 1/3 of the ordinary rate). The effect: a substantial residence advantage. On a CHF 400,000 withdrawal, tax varies between roughly CHF 14,000 (Schwyz, Zug) and CHF 36,000 (Basel-Stadt):
| Canton | Approx. tax on CHF 400,000 | Net capital | Breakeven (5.4% conversion) |
|---|---|---|---|
| Schwyz / Zug | ~CHF 16,000 (4%) | CHF 384,000 | ~17.8 years |
| Lucerne / Nidwalden | ~CHF 20,000 (5%) | CHF 380,000 | ~17.6 years |
| Aargau / Bern / Thurgau | ~CHF 24,000 (6%) | CHF 376,000 | ~17.4 years |
| Zürich / Vaud / Geneva | ~CHF 32,000 (8%) | CHF 368,000 | ~17.0 years |
| Basel-Stadt | ~CHF 36,000 (9%) | CHF 364,000 | ~16.9 years |
Approximations for CHF 400,000. Actual tax is progressive and additionally depends on municipality, denomination, and marital status. Married couples benefit from the family tariff in most cantons. Splitting the withdrawal over multiple years ("staggering") reduces total tax by breaking progression — hence the tip: stagger 3a accounts and pension withdrawal timing.
Tax hack: staggering
If you hold multiple retirement accounts (3a, pension fund, vested benefits), staggering withdrawals across tax years breaks progression and saves substantially. Example: 3 × CHF 100,000 withdrawn in three different years is far cheaper than CHF 300,000 in one year. Pension fund withdrawal is constrained (fixed retirement date) — but multiple 3a accounts at different banks/foundations allow precise control. → 3a Tax Savings Calculator
Pension vs. lump sum — the honest comparison
| Criterion | Pension | Lump sum |
|---|---|---|
| Security | Guaranteed lifelong (as long as fund solvent) | Depends on investment return, market risk |
| Inheritability | No (exception: survivor's pension ~60%) | Fully inheritable |
| Flexibility | Fixed amount, not adjustable | Freely allocable |
| Tax on withdrawal | Fully taxed as income (yearly) | Once, at reduced rate |
| Inflation protection | Mostly not indexed | Equity-oriented investing grows real |
| Longevity risk | Fund bears the risk | You bear the risk |
| Investment risk | Fund bears the risk | You bear the risk |
| Discipline risk | Automatic monthly | Self-control needed (Behavior Gap!) |
The simple rule: live longer than the breakeven and the pension wins. Die earlier or want to leave an inheritance — the lump sum wins. But this is too simple — the lump sum can grow via investment returns, and the pension can shrink in real terms due to inflation.
The longevity risk — what BFS data shows
Swiss people live significantly longer than the OECD average. Current remaining life expectancy at 65 (BFS 2024):
| Profile | Remaining life expectancy at 65 | 95th percentile (highest expected age) |
|---|---|---|
| Man | ~20 years (to ~85) | ~94 years |
| Woman | ~22 years (to ~87) | ~96 years |
| University-educated | +2–3 year bonus | ~98 years |
Source: BFS period life tables 2022-24. Trending upward with medical progress. Note: these are averages — as an individual you will live shorter or longer.
With a 17-year breakeven and 20+ years of remaining life expectancy, statistics narrowly favour the pension. For university-educated and healthy lifestyles, the shift toward pension grows. The pension is at its core an insurance against longevity — and Swiss life expectancy is among the highest in the world.
📚 arvy Book Club
Die with Zero — Bill Perkins
Perkins' provocative thesis: most people save too much and live too little. His optimisation goal: net worth at death should approach zero. For the pension-vs-lump-sum decision, this reframes everything. The pension is "leave the optimisation to the fund" — safe but you can't accelerate the spend-down. The lump sum is "I'll spend it down myself" — riskier but you control the curve. Perkins argues: most people overestimate longevity risk and underestimate the cost of unused money.
Mixed withdrawal — the best compromise for many
Most pension funds allow a mixed withdrawal — part as pension, part as lump sum. This is often the psychologically best option: guaranteed baseline plus flexibility and inheritability for the rest. Three typical allocations:
| Allocation | Best for | Advantage |
|---|---|---|
| 100% Pension | Maximum security needed, no heirs, little investment experience | Complete risk coverage |
| 75% Pension / 25% Lump sum | High security needs, but want liquidity for repairs, travel, gifts to children | Baseline + reserve |
| 50% Pension / 50% Lump sum | Balanced — basics covered by pension, lifestyle by lump sum | Optimal compromise for many |
| 25% Pension / 75% Lump sum | Investment-savvy, plans inheritance, comfortable with self-management | Maximum flexibility |
| 100% Lump sum | Inheritance-focused, high investment competence, other pension income available | Full self-determination |
Important: mixed withdrawal usually requires 3-6 months' advance notice to the pension fund. Missing the deadline = automatic 100% pension. Check the fund's regulations. For the full strategic guide: Pension or Lump Sum: The Complete Guide.
5 typical mistakes in this decision
- Missing the deadline. Most pension funds require 3-6 months' advance notice for lump sum or mixed withdrawal. Miss it and you're automatically locked into 100% pension. Set a reminder 6-12 months before retirement to speak to your fund.
- Underestimating the tax burden. Taking everything in one year (pension fund + 3a accounts + vested benefits) means significantly more tax through progression. Staggering over 3-5 years saves thousands.
- Behavior gap in the lump sum scenario. Taking the lump sum and then panic-selling in a crash loses more than the conversion-rate disadvantage ever would. Vanguard's Advisor's Alpha study shows: 1.5% Behavior Gap per year — on CHF 400,000 that's CHF 6,000 per year.
- Overvaluing inheritability without heirs. If you have no heirs (or are neutral about leaving an inheritance), inheritability provides no value. The pension is then almost always superior.
- Ignoring survivor's pension. For married couples, the surviving spouse typically receives 60% of the old-age pension. This makes the pension more attractive for couples than the pure breakeven comparison suggests.
Frequently Asked Questions
When is the pension better than taking the lump sum?
The higher the conversion rate and the longer you live, the better the pension. At a 5.4% conversion rate and CHF 400,000 balance, the nominal breakeven is roughly 17 years. Retire at 65, live to 85+ (typical Swiss life expectancy) — pension usually wins. But additional factors like inheritability, inflation, and investment return shift the result.
What is the conversion rate and how does it affect my pension?
The conversion rate determines your annual pension: balance × rate = pension. The BVG minimum 6.8% applies only to the mandatory portion. Most Swiss pension funds apply a lower blended rate of 5.0-5.8% to the total balance (incl. supra-mandatory). A lower rate makes the lump sum more attractive.
How much is the lump sum withdrawal tax in Switzerland?
It varies massively by canton: Schwyz and Zug ~4%, Basel-Stadt ~9%. On CHF 400,000 withdrawal that means between CHF 16,000 and CHF 36,000 in tax. Tax is levied once, separately from regular income, at a reduced rate (1/5 to 1/3 of the ordinary rate). With multiple retirement accounts, you can save by staggering withdrawals across years.
Can I combine pension and lump sum?
Yes, most pension funds allow a mixed withdrawal — e.g. 50% pension + 50% lump sum. This combines the security of the pension with the flexibility and inheritability of the lump sum. Common splits: 75/25, 50/50, 25/75. Important: 3-6 months' advance notice required. Check your pension fund regulations.
How is the pension taxed?
The pension is fully taxed as income each year at your ordinary marginal rate (25-37% depending on canton/income). The lump sum is taxed once at a reduced rate. The lump sum is usually more tax-efficient — and if you invest it afterwards, you benefit additionally from Swiss capital gains tax-freedom for private investors.
What happens to my pension if I die early?
The old-age pension expires at death. Exception: survivor's pension — typically 60% of the old-age pension paid lifelong to the surviving spouse, plus possibly an orphan's pension. Single people without legally entitled heirs "forfeit" the unused balance — it stays with the pension fund.
Is the pension safe? What if my fund goes insolvent?
Swiss pension funds are strictly regulated (BVG). In case of insolvency, the BVG Guarantee Fund (Sicherheitsfonds) protects statutory benefits up to 150% of the upper limit (2026: CHF 132,300 insured salary). Supra-mandatory balance above this threshold isn't guaranteed. Insolvency cases have historically been rare.
How should I invest the lump sum?
Rule of thumb for 65-year-olds: 40-60% equities, 30-50% bonds, 5-10% cash. At 80+: 30-40% equities. A "100% safe" approach loses real value to inflation. → Investing After 50: The Guide. arvy offers professional asset management with active stock selection from CHF 100/month.
Should I take the lump sum if my conversion rate is low?
Tendentially yes — but with caution. A conversion rate of 4.5-5.0% (vs. 6.8% BVG minimum) shifts the breakeven by 3-5 years, making lump sum more attractive. But longevity risk remains: if you live to 95 with the capital depleted, you have a problem. Solution: mixed withdrawal.
What is the survivor's pension?
At the death of the pensioner, the surviving spouse typically receives 60% of the old-age pension lifelong. Registered partnerships are equivalent. Cohabiting partners only qualify in a few funds (check the regulations). With mixed or lump sum withdrawal, the survivor's pension is correspondingly reduced or eliminated.
All arvy Calculators
Budget Calculator
Gross → Net → Savings Rate
Compound Interest
Calculate wealth growth
FIRE Calculator
Financial Independence
Fee Comparison
Bank vs. Robo vs. arvy
Inflation Calculator
Purchasing power loss
Dividend Calculator
Passive income
Savings Rate Calculator
How much do you really save?
Pension Gap
Part-time & career breaks
3a Tax Savings
Save taxes with pillar 3a
Investing Glossary
89 terms explained
