Hi,
I'm new to the MMM blog and the community, as well as basically the whole idea of early retirement. Looking at some of the math behind it im thinking that this is something i could actually do. I'm quite young at 25 and i've always been relatively good at saving up money, but im not good with finances other than that, or even maths.
At this point im looking at my options to see what the best course of action is in regards to saving. I live in Norway and the rules of taxation and several other things differ from in the US, but once the similar but different variables are known i think i can more accurately decide what's best. If anyone already has any specific knowledge on these differences i'd love to hear it.
Sums might look odd because of the value/exchange rates but i'll throw out some numbers, exchanged to USD:
- Annual take home income: 40k
- Starting portfolio after setting aside my emergency fund: 16k
- Estimate of annual spending: 25k (40% savings rate)
Income will almost certainly increase quite a bit over the years, but i dont feel like i need to spend any more. I've been looking at where this gets me with saving in index funds at the min rate of 5% returns after inflation, but i have to take into consideration higher taxes (not sure about the US levels):
- Capital gains tax of 25%. Will come into play at the age of retirement when realising gains i guess.
- Total assets tax that kick in at certain ranges, dont know the percentages but:
80% of 259.740 usd would be taxed 574 usd annually
80% of 389.610 usd would be taxed 1.678 usd annually
80% of 649.350 usd would be taxed 3.885 usd annually
This rate goes for all stock funds/accounts over a certain value. Bonds are taxed at 100% of the total fund/account, over this value. Other than these things i cant think of anything else, other than pay and the cost of living to a degree, that is very different from in the US. I dont think we have the equivalent of a Roth, IRA and those types of accounts, and no company matching - but the company you work for pays between 2 and 5 % of your annual salary to your official pension account for payouts after you turn 62 (im doing some research on the flexibility of these accounts).
Currently im selling my car and will only have a loan for the apartment that i share with my SO. Our mortgage interest rate is at around 2,2% with the total cost of the apartment at around 363k (we borrowed 75% from the bank).
Im trying to decide if i'm going to try and pay down this apartment asap, and then start investing in index funds with more money per month, or to go straight into index funds now and pay down the loan normally on the side. I'm quite risk averse so after around 3% inflation and the general risk (and the running 2,2% or potentially higher loan interest on the side) i'm not loving the idea of going the investment route first. But when i look at the potential for exponential growth i kinda get excited for it too.
Also, what happens to the money i invest in an index fund if a financial crisis strikes? At what point do you lose the money? Looking at the history it looks like that's a good time to power through and invest even harder for the upswing. Is that wrong?
Any advice at all would be appreciated. Pardon for my lack of knowledge in the field.
Edit: If anyone can say how these differences in taxation would affect the tables shown in MMM's article "The Shockingly Simple Math Behind Early Retirement" that would be awesome.