Author Topic: Reader Case Study - FIRE in Europe  (Read 1222 times)

iceberg8

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Reader Case Study - FIRE in Europe
« on: July 11, 2017, 09:51:43 AM »
Hello,

I love this forum (and the people behind it), and that's why I will try to keep it simple

and short.


Life Situation:  My GF and I. Both 30.

Gross Salary/Wages: 1000+1500 brutto, 700+1000 netto , no debt, no mortage.

Other Ordinary Income: 20-30 a month, as she writes articles to health/fitness blog.

I have no other income.

I'm not sure, how to translate (not the word, but the system) 401k, HSA, FSA, IRA,

insurance, etc. - whatever you have. So i will try to explain briefly.

What we have today:
1 flat (2 rooms, 1 kitchen, 1 bathroom, 1 toilet) in a concrete (ugly) socialistic

house (120 total flats). It is 15 minutes by car from downtown. Among 17 city parts, it's

average in popularity and overall. Estimated worth is 100k. Speculative worth is

105k. Size is around 555 sq ft. Liquidity is rather high, I think we could sell in

1-2month, for estimated, 6 months for speculative, but that is only my limited opinion.
1 car, 5.5yrs old, 140k miles, new value 24k, estimated value 8k fast sell,

10k for similar cars but a bit lower mileage. 28MPG. Usage: her work, my work, family,

short trips, long trips. To be honest, the border between laziness and a need is fragile.

We could survive without it, but would make life tough (family visits, would need hire a

car for vacation 500miles away, that cost 250/week + gas, in average once or twice a year).

Est miles per year = 25k.
1 small poodle. :)

No one from us has life insurance, only the state insurance. Paid from work, wage. Will not

bore you, complicated. Here in EU (or my country specifically) its expensive, and well,

quite different. usually they allow only to the amount of the loan (eg, as primary family

earner, they would insurance me up to 100k,if i would have 100k loan, but logically, that

would not suffice in real life, after my death, as she could be 1 week pregnant, and so on,

a lot of theories).

Anyway, 100k in flat, 8k in car we need. she is 15 min away from job, I am 1 hr away from

job (6hrs hard job), she has 15k in saving account, no interest rate (i have no balls to

suggest her any stocks or bonds in today's markets). I pay the bills.

Bills: (for easy count, monthly rates)
flat: energy+water 80, repairs fund 40 (all flats must pay this, its our share), electric

energy 30, internet+tv 20, both phones 10
car: well, this is funny part, tax 12, insurance 40  (I can cancel this), oil change and so

on (a lot of DIY) 40, gas 250
poodle: 10
food: well, this is relative, since I put money into gas, which takes me to my and her

family, they donate us their own food from their own land, so some gas translate into food,

the rest is = 200 (both of us)
clothing: she has to dress nicely, favorite store H&M ( I think  expensive, but people say

its average), I have no exact numbers, but I think 50 a month for her. 20 for me, let's

say. shoes included.
bathroom:  no exact unfortunately, but 20 both
fun: 20 (random basis, cinema, eating out, drink out, expensive bottle water out when we

forget it home and so on)

Total 842
Left 858

Max possible savings per annum = 10296

Few things I did forget, bank fees, she 4/mon, me 0 (I'm more aggressive here with banks,

she refuses, so that's it, it's complicated). So that's why I like to round down from 858

to 800. Seems reasonable, as I did not calc anything like dish washer (5yrs old) and so on.

If this is against rules, I will upload a super detailed sheet few weeks later. Vacation is

1-2K yearly too, ehm...

So real possible savings per annum = 8K

Now, how much per month do we need to FIRE? That's the question. I am not sure.

One bonus - we have no kids,if we would want one, its +300/mon.

From thsi income, I can't believe someone would reach FIRE in one lifetime... BUT that's the reason i did post this topic, I would need some out of box opinion...
ignorance is bliss

Feivel2000

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Re: Reader Case Study - FIRE in Europe
« Reply #1 on: July 11, 2017, 03:13:57 PM »
Since you do not have many work related costs, you would probably need around 850€/month -> 10.200€/y

With 4%, which probably won't work in Europe, you would need 255.000€.

If you make 3% interest in the saving phase, you have the money in 23 years.

So early retirement with 55?

Have you ways to improve your income? Maybe you could rent out the flat and go in another country for a few years? The wages very different in other EU countries.


PapaBear

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Re: Reader Case Study - FIRE in Europe
« Reply #2 on: July 11, 2017, 04:36:19 PM »
Will you tell us from country in Europe you are from? There might be some people around with some knowledge regarding your local situation that can chime in in terms of cost of living in retirement and taxation in retirement. Your use of brutto/netto indicates a country in the Germanic-speaking or Scandinavian spectrum, but I might be wrong.

- Biggest lever in your case will be increasing your income, since your expenses seem already quite low for a couple (however, this depends on your local cost of living)
- I would agree with Feivel2000 that the 4% rule might not work as well in Europe as in the US (due to differences in bond returns, I guess). Calculating with 3% or 3.5% seems to be more appropriate. Please note that the 4% rule only applies to invested money (stock/bonds), the money tied up in your apartment or in a deposit account.
- However, please note that you need to take your local taxation into consideration. The tax-deferred investment vehicles differ from country to country (another reason why it would be great to know your home country) as well as the capital gains tax. If I take Germany or Austria for example, if you use after-tax investment gains to finance your lifestyle in retirement, you would need to factor in at least another ~25% of capital gains taxes.

A few questions to think about regarding early retirement:
- How do you invest your current surplus?
- Is there a public pension system in your country or are you paying into other types of pension (e.g., at your employer). If yes, what is your expected pension when reaching the local retirement age? This could reduce the money you need for retiring early.
- How much does healthcare cost for early retirees? You have mentioned state health insurance, but I guess there is a deduction from your salary for this insurance, right? When you are not working anymore, you would most likely pay for your health insurance out of pocket - this increases your retirement budget.
- What kind of tax-deferred savings vehicles are available in your country?

On another note: Did you copy your text from a different text editor like Microsoft Word? At least in my browser, the formatting seems a bit off and the space between lines to wide - which makes it more difficult to read. Copying it from the Windows Notepad or any other basic text editor without formatting helps a lot :)

iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #3 on: July 12, 2017, 02:28:35 AM »
The country we are from is Slovakia.
Going abroad to push up the savings is a good idea, rent from this flat would bring maybe 4K after taxes and fees. But since its renovated, i would be afraid they would break something, and I would be in a loss. But it would be possible to exchange it for non renovated and renovate it just just so it is rentable.
Truth is, just few miles away, Austria, it's very similar to Germany, the wages are way higher, maybe double, but I am not sure, since never been there and never tried on my own skin. Also, the rent would be higher there, but it's much more richer country, so it's one of the ways how to achieve it.

Some couples survive from 800eur per month, that amazes me, perhaps even from less, maybe 600. But at the cost of very risky food (cheap, unknown source and so on), but its doable.. I was thinking I could save a bit byt growing own vegetables, but that won't give too much of a savings.

4% rule, hm, well I could risk USD stocks, but not sure if there won't come some decade, like NIKKEI, that would hurt.. Also, I have read a lot of theories, how bonds don't keep up with inflation so not sure about that..


Regarding capital gain tax, well, i am not sure, partly due to fact, that gov is changing the rules way too often, but I think, there is no capital gain tax at the moment, but 14% tax must be sent to healthcare. I would need to find out and will post it later :)

- How do you invest your current surplus?
so far, we do not invest, just bought this place, two years back, and renovated it, so my surplus went to the place. The next surplus, I will need to find some way how to invest it. GF's money is on saving account, with 0.3% before tax... Banks don't give more than 1%, because they think there is no inflation :) So the short answer is, nohow.
- Is there a public pension system in your country
Well, there is, but I personally think its a ponzi scheme.. There are two. First works as "young feed the old" - means if there is more young than people in pension, then the pension is good, but our generation may suffer as there won't be enough young people to feed this system, and us in pension. If we were in pension today, we would get min 300eur each, I think. But I am not sure. The second one is portfolio of various bonds, stocks and so on, but the problem here is, their annual fees are so high (maybe 1-2%), that I am not able to calculate this, but calculators online gives me the number of 800eur each, so 1600 both. At the age of 65-67 or similar. Sadly, I can't answer this correctly. But i would rather not count on public pension at all, maybe the minimum by law, that is 200/person today. But maybe it is wise to play with this system, and invest some as gov cant just ignore pension. If I would be 100% on my own, like stocks, bonds, or even cash, it could end tragically.
The problem is, I do not trust these numbers, because if I would be investing in simple S&P500 all money I am obligated to send to pension funds, I would have triple, if not five fold of this sum at the same age. (fees, fees, fees).
According to my calc sheet,
Dividend Growth   1.05
Dividend Yield   0.03
Monthly Investment   180
Share Price Growth   1.03
after 40 years of reinvesting it all, compounding would bring me to 17K monthly income. but maybe my calc is broken. After 10 years of saving 180/mon (this is what goes into pension fund from paycheck), I could beat the public pension by 888/mon dividend income. Minus taxes. But it's still a lot better. I can upload the sheet if someone would like to play with it.
How much does healthcare cost for early retirees?
yes, if you are working, it is deducted, if not working, the amount is 60/mon.
- What kind of tax-deferred savings vehicles are available in your country?
First 500 EUR profit from rent/dividends/stocks per year is free of tax. But there is some rule, if you hold ETF for more than 1 year for example, even if you sell it for profit, there is no tax. Maybe health insurance payment of 14%, but I am not sure, maybe its 100% tax free income then.

Yes, notepad with formating, sorry about that, now I did type in  this box, so I will preview before post :) Thanks for the note. i am always paranoid the text will lose due to some tech error, or I close it by mistake :)
ignorance is bliss

Feivel2000

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Re: Reader Case Study - FIRE in Europe
« Reply #4 on: July 12, 2017, 02:54:35 AM »
With Austria this close, could you probably work there without moving?

What fields are you working in? Healthcare e.g. is looking for people everywhere. You could probably triple your income.
Of course, language could be a hindering factor.

The problem with the 4% is not so much the kind of stocks you are buying, but the surrounding general set-up. The good thing is that you don't have to figure everything out now. Long before you have 300.000€ in the banks you will have 100.000€ and then you can adjust your goals according to your learnings.


iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #5 on: July 12, 2017, 03:35:35 AM »
Hm, well even in mid sized store, here you get 500eur after tax, in Austria it could be 1500-2000, or maybe more, I have no exact numbers, only those from internet, and can't take them so seriously. But in health care, the numbers could go insane in Austria.. I work construction worker (no degree, so no good job), GF in gov sector, and her skills would not help in Austria I think, also the language, we don't speak German, unfortunately, I had it at school, for 6 years, yet, i know nothing :) But still, we could get similar job somewhere where no language is barrier (eg: some background jobs in groceries, hotels or logistics) and could easily double up the income, but today I have no knowledge how to get such job. Since they get some bonuses if you commute, or have kids... Here too, but much less. If I would do construction work over there, I could double the income I think, but the main problem is, how to get on their market, need a company maybe, some name so people will hire me. Commuting there could take 20-30 minutes, depends how far would that be.
Another way to boost income would be to speculate, sell the flat, get a rent for some time, buy some old flat, renovate, sell with profit. But it could be risky, not sure if it is worth it.
ignorance is bliss

Feivel2000

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Re: Reader Case Study - FIRE in Europe
« Reply #6 on: July 12, 2017, 03:53:54 AM »
Ask around at work. So close to the border I would really be surprised if no coworker of yours already worked in Austria or at least knows someone who did. Then get in touch and learn how they did it.

Not an all covering solution but a solid first step.


PapaBear

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Re: Reader Case Study - FIRE in Europe
« Reply #7 on: July 12, 2017, 08:55:13 AM »
Ok, quite interesting. Let's talk a bit about investing in Slovakia.
I resesarched a bit about the Slovak system and came across a few interesting insights. Maybe you can check whether this is still up to date:
http://ec.europa.eu/social/main.jsp?catId=1127&langId=en&intPageId=4767
http://www.socpoist.sk/social-insurance-system-in-slovakia/24533s
https://spectator.sme.sk/c/20180389/making-the-third-pillar-more-attractive.html

If I understood it correctly, there are three different tax-advantaged retirement pillars:

1- Mandatory public pension, start with 62 and rising, depending on average life expectancy, you need to pay at least 15 years in to the system to be eligible. You collect points for every year you pay in parts of your salary
2- Mandatory private pension, invests in stock/bonds, you can choose between growth, balanced or conservative asset allocation, same start age, you need to pay in at least 10 years to get benefits
3- Voluntary private pension, tax-deductible up to 180 EUR/year, different investments possible, early withdrawal possible

So since 1 and 2 are mandatory and there is no option of voluntary self-funding, there is nothing you can do about it. I would include a conservative estimate of the potential payouts in your retirement calculations.
If you are planning for early retirement, please make sure that you have worked and paid in the necessary years (10/15) to receive the pension.

In pillar 2, you could check in what kind of plan you are enrolled (growth, balanced or conservative) and compare different insurers in terms of cost.
For pillar 3, you could check if there are attractive products out there and invest up to the annual tax-deduction limit (180 EUR/year). Why not using this free tax money, even if it is just very little.

For the remaining surplus, you should check about options to invest in low cost ETFs (Exchange traded funds) via direct/online banks in Slovakia.
In your case, I would invest in a balanced worldwide portfolio with European, US and Emerging markets stocks.
In Europe, you will usually find a lot of ETFs tracking the MSCI World, S&P 500 (US), Stoxx 600 (Europe) and the MSCI Emerging Markets index.
An ETF tracking the MSCI World index is a great start for beginners, as it includes most industrialized countries in one fund. Make sure that the Total expense ration (TER) of all funds is acceptable (<0.5%). In the beginning, it could make sense to invest in distributing ETFs (paying dividends) until your annual dividends reach the tax-exempt level of 500 EUR per year. Above the tax-exempt level, usually accumulating ETFs are better suited, since they avoid taxation before you sell the ETF.

For the less risky part of your portfolio, you can either add bonds or you can stick to your deposit account with 1-2% yield. AAA- and AA-rated Government and corporate bonds will most likely yield way less than 1% right now, so the deposit account might be a better start.
Check which bank offers the highest interest rate. All deposits should be protected by the state up to a limit of 100,000 EUR per customer per bank (http://www.fovsr.sk/en/about-the-deposit-protection-fund/).
However, you might be in a better position to assess if that local protection scheme is able to compensate you in case a bank goes bankrupt.

---

Then, you just need time and patience to ramp up your savings and watch the magic of compounding interest.
« Last Edit: July 12, 2017, 08:56:56 AM by PapaBear »

iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #8 on: July 12, 2017, 11:19:57 AM »
Well, PapaBear, hats down, fantastic job there :)
You are correct about every info you wrote, as far as I know..
I also like the strategy, and last year or two, was planning very same (browsing local forums about investments, trading, stocks, etfs), but you tweaked it way up, so I invest into dividend ETFs as far as I can use the 500EUR a year tax-exempt. (let's say dividends are 4-5%, so I can push 10K there, 20K if GF do the same). That was a good trick.
Only regarding Pillar 3, there are few experts who are saying that their fees will eat up everything,, annual fee is 1.8% but will go down to 1.2% by 2020, some other fees, so TER could be higher. But it will save 34.20eur on tax, if invested all 180eur yearly.. So it evens out somewhat.. So I would need to do some math...
One thing I am afraid of is - if the stocks or ETFs are not overpriced today.. but even if so, who knows, maybe it will do another +30% in next two years, and I would miss those 30%. even if then comes some crash of 20%, I would be in +7% or so.. And if I apply dollar cost average, like buying each quarter (lynx (under IB broker) offer one trade for $5 I think.. so that's why not monthly). But what I'm trying to say, waiting for the dip might not be such a good idea, as markets are always illogical... Already have account there , but not yet funded. Just need to allocate some surplus funds..
Thanks for your time ;)
ignorance is bliss

farfromfire

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Re: Reader Case Study - FIRE in Europe
« Reply #9 on: July 12, 2017, 12:49:08 PM »
I think it's worth thinking about you both learning German in your free time till A2 level, and then getting a better paying job in Vienna. This is by no means easy, and the commute is a huge waste of time (I think an hour), but as you say the pay is better. If you move to Vienna expect to pay 500-800 EUR/month for renting an apartment like yours and utilities, buying isn't really an option here. And you can still get healthcare in Slovakia. Hell, some of my Viennese colleagues travel to Slovakia/Hungary for expensive procedures/dental.

As I guess you're aware, many Austrians unfortunately look down on Slovaks, thus learning German is recommended even if unnecessary for the job.

iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #10 on: July 12, 2017, 01:17:23 PM »
Thats true. Language is important, essential.
If i were Austrian, I would not like cheap workers also.. So it is quite natural  .. Sad thing is, it's similar size (well, larger, 19 vs 32 mi2 for AT), but similar inhabitants ( 5.5 vs 8.6), and yet, so different.. The history, nature of the people... it changes whole countries...
ignorance is bliss

PapaBear

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Re: Reader Case Study - FIRE in Europe
« Reply #11 on: July 12, 2017, 02:54:21 PM »
Great, happy to help. Two more comments:
(let's say dividends are 4-5%, so I can push 10K there, 20K if GF do the same
Yes, that is exactly right, there is no reason one should not to use the tax-exemption every year :) Only one remark, I guess you need to deduct the interest of your girlfriends deposit account of her 500 EUR tax exemption, so it will be most likely less than 10k for her.

One thing I am afraid of is - if the stocks or ETFs are not overpriced today.. but even if so, who knows, maybe it will do another +30% in next two years, and I would miss those 30%. even if then comes some crash of 20%, I would be in +7% or so.. And if I apply dollar cost average, like buying each quarter (lynx (under IB broker) offer one trade for $5 I think.. so that's why not monthly). But what I'm trying to say, waiting for the dip might not be such a good idea, as markets are always illogical...
Don't worry about the current status of the market. If you start investing regularly now, the stock market status at your start date will not matter a lot in 10 or 20 years. Timing the market is usually not a good idea.

Norgirl

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Re: Reader Case Study - FIRE in Europe
« Reply #12 on: July 19, 2017, 12:40:26 AM »
I am from Vienna and I'd say there are better places to make money. There is a lot of labour coming into Vienna at any given time and they do the pension contribution ponzi scheme thing too :)

I'd say if you are prepared to move consider Perth, Australia. The minimum wage is A$17 per hour, but you can easily make double that in construction. The going rate for a cleaner is $25-30 per hour. The mines soak up a lot of manual labour, leaving room for immigrants in everyday jobs.

There are cheap rentals around, Kwinana would probably be one of the cheapest areas close to public transport (starts at $170pw for a 2 bed apartment) but there are nicer areas for $250 if you are ok with living in a flat.

If you can get a visa, skip the German course!
« Last Edit: July 19, 2017, 12:53:33 AM by Norgirl »

iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #13 on: July 20, 2017, 10:17:43 AM »
I was thinking about AU too, few years back, but not sure if I would fit into tight immigrants rule. But I love to watch those AU documentaries :)
ignorance is bliss

Imma

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Re: Reader Case Study - FIRE in Europe
« Reply #14 on: July 20, 2017, 11:06:14 AM »
I recognize your situation. I'm in (western) Europe and with income levels lower than the US and higher taxes and money tied up in rigid mandatory government pension schemes it seems it's much harder to achieve FI in Europe.

The only advice I can give you is trying to work in another European country where incomes are higher. I know there are temp work agencies especially looking at recruiting people from all over Europe and they usually provide housing. The down side is that not all of these companies are trustworthy and you'd be doing hard work. But if you're already working in construction, then you're used to doing hard work. I know in my country there's currently a shortage of construction workers with the housing boom and I expect that to be the case in more countries. The other option would be to do some work on the side - since you are in construction, could you do jobs in your spare time? Another option is to learn some new skills in your spare time and choose a different career that is better paid.

I would also recommend you to learn proper German. I had German in school for 6 years too and I don't remember much and I really regret not paying more attention in school. German is the leading language in Europe, even if most German speakers also speak decent English.

iceberg8

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Re: Reader Case Study - FIRE in Europe
« Reply #15 on: July 22, 2017, 07:49:22 AM »
Thanks for the post Imma :)
I'm wondering, how long will that housing boom last.
I started to learn Deutsch maybe three times, never kept going on, what a shame :)
That is funny, I have some spare time, say even one hour per day, it would take 2-3 years to get some basics, which would allow me to go to German speaking countries, and then learn the rest.
I think I'm just paying the laziness tax. Instead of vaccine's topics, and other worthless things on the Internet, I could simply invest those seconds elsewhere.. Hm..
ignorance is bliss

Imma

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Re: Reader Case Study - FIRE in Europe
« Reply #16 on: July 22, 2017, 02:48:48 PM »
It does sound a bit like laziness (no offense meant). If you took it for several years in school, you already speak basic German. Ja, nein, Bitte, Danke, ich spreche nur ein Bisschen Deutsch, that's basic German. If you watch German TV for an hour every day (just stupid police series) you'll have a working knowledge of German before the winter. There are a lot of language-learning websites on the internet, maybe there's a German conversation course in your town? Maybe the local library or a college. If you are into IT, there are lots of skills you can learn in that one hour a day spare time. Or if you want to stay in the construction business, can you learn a special skill that not everybody has? An electrician friend of mine is now a domotics expert and he earns a lot more than he used to.

I know it's not easy - I studied in the evenings while working during the day as well - but it's definitely do-able if you want to.

Feivel2000

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Re: Reader Case Study - FIRE in Europe
« Reply #17 on: July 22, 2017, 03:12:16 PM »
Speaking the language is always useful but I wouldn't overestimate the need for perfect German if you work in construction. Say that you had it in school and that you think you will catch up fast when you hear it ever day.

If you get multiple rejections caused by the language skills, rethink my strategy. But I wouldn't use the language as an excuse.