Thanks for the clarification. Sounds overall like a reasonable and well-elaborated setup on your end.
For the shift-down/retirement phase, a few further suggestions came to my mind:
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In terms of the general portfolio set-up, I would consider a multi-bucket approach:
First of all, I would calculate 2 different monthly retirement budgets: The first one very bare-bone, maybe only rent, food, necessary insurances and communication. The second one as your desired budget with discretionary spending, car budget and all the required splurges that make your retirement great.
Then, you divide your portfolio in three different buckets:
- The liquidity/security part: e.g. 6 times your bare-bones expenses, held in cash or current deposit
- The income part: Distributing ETFs at your regular broker, where distributions are taxed. In the best case, this bucket would be large enough to fund your monthly bare-bone expenses.
- The growth part: Accumulating ETFs in an insurance wrapper (e.g., Cosmos Direkt Flexibles Vorsorgekonto Invest). Due to the insurance wrapper, no "Vorabpauschale" would be raised, rebalancing and changing ETFs can be carried out without paying taxes and after minimum 12 years in the wrapper and your 62nd birthday, only half of the capital gains are taxed if capital is taken out of the insurance wrapper
In your case, this has a double effect: First of all the direct effect of improved compounding due to no "pre-taxation", second of all reduced healthcare cost, since the returns in the wrapper are not considered as income in terms of the public health insurance and thus do not increase your monthly healthcare premium
(Please note: The wrapper costs about 24 EUR/year + TER of the ETF/Investment funds. Not all ETF are available in the wrapper but the most important are, e.g, on MSCI World. Of course they are trying to sell you more expensive investment funds first, but you can request a full list of the available ETF via their contact form. One caveat: This or similar wrapper products should not be converted to a pension, since the conversion rate ("Verrentungsfaktor") is rather low. However, this is not important, since the full payout at some point 62+ is way more attractive anyways.)
With this setup, you could sleep well in various scenarios:
- In a regular market/regular self-employment situation, you have the peace of mind that your bare-bones expenses are covered by the investments and that you just work for the "fun" part
- In a market downturn, you can either cut costs closer to the bare-bones expenses or pick-up more freelance projects
- In a dire job/project market with lower project income, you can either cut cost to the bare-bones or shift money from the growth bucket to consumption (and bite the tax-bullet)
- Short term dips can always be covered with the liquidity/security cushion you have in accessible accounts
- When your rental income kicks in, rental income can replace either project work or investment income and you can shift a portion of the income part to the wrapper in the growth part
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Additionally, a tactical suggestions for the transition from regular employment to semi-retirement/self-employment, in case you don't know about it yet:
You can game the tax rate system by
pre-paying your health insurance and save a few thousand EUR for your first years of retirement:
As a self-employed member of the public health insurance, you can pay up to 30 months of insurance in advance. If you do that in December of your last year with your regular income (@ 42% marginal tax rate), you can fully deduct it from your regular income in that year.
In the following years with only investment income and project income, you should have a lower marginal tax rate - the difference in the tax rates multiplied by the prepaid amount is roughly your return on this investment.
More information on the procedure can be found e.g. here
http://der-privatier.com/kap-10-2-vorauszahlung-von-krankenkassenbeitraegen/---
Again, a lot of text :) I hope there are some helpful bits and pieces included. Best of luck with pushing your early retirement forward in the next 4 years.
