European mustachians, what's different from US?

[DaKini]

A related question.  Are IRAs or 401ks still tax-advantaged if you live in any European country?   

Here in germany you have tax advanced accounts. However they have some huge negative sides:
- they cannot be touched before normal retirement age (67 currently for me), there is no such loophole like in the states
- they can mostly only be used trough obscure insurance contracts; investment funds are usually not "yours" but only trhe gains according to the contract
- You are not allowed to take out all the principal once you reach retirement age, you can only access an annuity
- You can not pass your account easily in case of your death, in most cases. For the "Riesterrente" for example, the heir also needs such an contract where your contract is rolled over into

Basicly you have two options here:
a) through employer (Eichel-Rente) to be able to save directly from gross income to directly lower your taxable salary. However, you can only use the employer contracts. I would get an 12% match and did not consider doing this for the reasons above.
b) from your net income with a private "Riester"-contract. You can choose your provider at will and can deduct your savings ammount from your gross when filing your taxes. There are limits to this however. Again here, you only have a contract and usually do not own your assets outright. There are usually heavy hidden fees in the contracts and it is very hard to figure out the few fair ones. There are some ETF-providers around where yo can save into a portfolio, but all those i have found so far have a nasty hidden hook, aside from the law hooks described above.

My conclusion so far is, that this is a big ripoff that is intendet to keep you in the workforce as long as possible. You rack up assets for companies and once you are dead, the assets belong to the companies and will not stay in your family. You also have no chance of touching them in an emergency (however this has the positive side that they are protected in case of job loss)

How about investments? What European Mustaschians invest in?

Currently i save trough ETFs to access indexes (i prefer physical replication as well as income-variants paying dividends for tax reasons and also to have a additional cash flow without trading costs in case of emergency). I have built a worldwide diversified portfolio of stocks (both developed and EM), REITs and commodities in my asset allocation.
See here: http://forum.mrmoneymustache.com/investor-alley/worldwide-diversification-please-rate-my-asset-allocation/msg245133

[theglobetrotter]

We are Americans living in England

Pros:
As long as you get a good/great school, public school is free and good quality
Pubs in almost every village/few blocks if in a city. You can always wobble yourself home basically
People are generally more open minded and liberal
Fab for those who loves history, you can even participate in many reenacting events
Loads of activities for families! Many are free or a pretty cheap year membership, £80-£100/year or so gets you unlimited entrance to castles, estates, parks, and piles of rocks aka Stonehenge :) During school holidays these places has extra events for free or extra £1. I think it's like having Wiiliamsburg in every county!!
NHS has moments but in general, it's a really great thing that England has
Only huge cities sprawl it seems. And even then it's not as bad as the US. We live 13 miles from Cambridge but we're in a village. There are villages about 6 miles out of Cambridge and it's still a sleepy village. No shopping strips or no huge development.
No major natural disaster potential. There's big waves/wind, floods and occasional snow storms but no hurricanes, tornadoes, etc
Lots of old places. It was neat to stand on Hadrian's wall :)
Children's activities are cheaper. $5/ballet class compare to dd in the US at $10 I think.
Cheap drugs. 30 pence for ibuprofen! 10 in a pack I think.
Easier to eat well here. Even restaurant use local products and happy meat. Packaged food are better material too. Less junk/preservatives... Just nicer.
Grocery delivery!!! Even to tiny villages!

Cons
If you make dollars, the exchange is crappier right now. The prices are equivalent, $10 in the US and £10 in the UK for a build-a-bear outfit or £5 and $5 chicken. But if you don't make ££, it's extra cost.
There is no transport for children. I drop and pick up the kids at school. There's no drop and go, where you drive to the school gate/door and a teacher/aid will receive them and you go, or the bus/car queue. You got to walk/drive them to school and wait until the bell rings. This is R-year 6. Year 7 on you have transport option. So, if you work and have ownership of young children, you need to be lucky and live in a village where the school has before/after school care (7:30-9a and 3:15-6p at ours) or find a daycare/child minder that does pickup and drop off.
Proper clubs are difficult to find. Competitive gymnastics club are everywhere in the US. Here, one every 30-45 min IF you're lucky. Dd is a gymnast, 45 min away and 12-15hrs a week. Our old gym in the US, 10 min away!! Ditto for most sports/activities. There are many many rec clubs but for anything more serious, it'll be a drive unless you're lucky.
Real estate is expensive for the size. If we make ££ it's a bit more reasonable but if you make $$, it'll be like buying in a big city. And we really don't want to live in the middle of nowhere.
Traffic can be hell!! Rural areas have tiny roads and 5 miles can take 15-20 min. If there is a fatal accident on the highway, hope you brought food and a potty! The road can be closed for a few hours.

We LOVE living here though. LOVE! We would love to reach our million and run a pub here! If I am, or hubby too, are ambitious, we can go back and apply for a Tier 1 visa. But, our kids are still young and so we're going back in a few years, send them off to college, stock up our investments (hope the market stays healthy) and come back. My husband's one of those people who makes friends easily and people like (where I am the opposite) and while most Americans here stick to other Americans, my husband has made friends with all the village people, hangs out at the pubs, and the owners love him.

[train_writer]

I read the comments about social security/ health care/ education, but it is wise to know that now all EU countries have barriers in place for foreigners so you cannot just move and than calculate on social security when it goes wrong nor use the health care system!

For example in the Netherlands
- Deduction on your pension of 2 % of every year between age 15-65 where you haven't worked or lived in the Netherlands.
- Health care can be bought no matter the nationality if you are a resident.
- Unemployment is limited to a few months up to 2 years, depending on how long you have been employed.
- Disability security had some recent changes which mean your monthly income will become VERY low, < 50 % of your wage. Also, applicable only if you were employed during the time you became disabled/ ill.
- Higher education is very expensive for non-EU residents, aka 10k-20k per year. EU residents pay ~ 10 %. There are many other education options however.


But, yes, the sizes of the cities are related to 'being bikable'; public transport is awesome; parttime work is accepted. Thus, I will probably go for the option of retiring to a very, very parttime or seasonal job

[FrenchyMustache]

Way too young to talk about France myself, though i'm monitoring this thread as well, but it seems quite harder to reach FIRE in Europe anyway.
It has something to do with general lower salaries, i guess.

[Rienk]

A related question.  Are IRAs or 401ks still tax-advantaged if you live in any European country?   

This will differ from country to country. In the Netherlands (quite a few dutch people here it seems...) there is a tax-advantaged account for "supplementary pension" similar to the 401k, but most employers offer pensions that are sufficient to get by on, in addition to social security. This default of employer-arranged + social security makes early retirement something most people don't think about, and the people that do retire early have usually benefitted from some sort of special regulation at their employer. Working part-time is very common though, it's much more common to reduce your working hours to match lower spending than it is to plan for very early retirement.

The 401k-equivalent can still be used as well, either to supplement pension or in rare cases where the employer does not offer a pension plan (which is actually my case), or maybe for entrepeneurs and self-employed as well. It's tax-advantaged but subject to a bunch of restrictive rules, actually very similar to the German example above:
- Withdrawals may ONLY take place in the form of a life annuity with constant payments until death.
- Contributions can be done from before-tax income with a limit of about 12% of yearly income (not completely sure on the limit).
- Tax on withdrawals is much higher for payments made before retirement age (which rising from 65-67 over the next years and expected to then increase further) than after: about 37% compared to 22% depending on some factors.
- Capital gains are not taxed on "401k" accounts. For all other accounts, capital gains tax is done in the form of a 1.2% tax per year on your total balance over €20k, while actual capital gains are not taxed.
- The funds can either be in a special sort of savings account or can be used to invest, where the investment option is a bit similar to the US version in that you have to dodge the 1.5% TER funds and most people are unaware of this.

All in all, for me personally I've concluded that this 401k equivalent is suitable for actual old-age retirement needs, but any earlier retirement I should fund in an after-tax account. Also, for most people this sort of thing is left to the financial advisor, even though none of it is very complicated, there are very few people who have a good understanding of their pension plan.

[Christof]

A related question.  Are IRAs or 401ks still tax-advantaged if you live in any European country?   

I've heard rumors for example in Austria and Germany that capital gains and dividends are taxed in IRA and Roth IRA accounts  like as in non-retirement accounts---the account is treated like a regular taxable account for tax purposes because there is no treaty that recognizes an IRA as a retirement account. 

If you talk about keeping your existent investments in an IRA, living in Germany permanently and therefore have to pay taxes here, then the reality might be worse then you imagine.

Germany has publication requirements for funds and investment companies. Most inexpensive index funds offered in the US do not comply with Germany's law (why should they, they target the US market), which is one reason that the TER is a lot better for these funds then anything we can get here. Since the fund isn't transparently reporting capital gains and losses, our tax authorities estimated those. They assume that a fund gains 6% annually in addition to any distribution. Therefore you pay 28% tax on 6% of your portfolio each year plus on all distributions.

Then there are US taxes, too, unless you give up citizenship.

[europe]

Sourds à bit, my fellow mustaschians, like we should all move to US, get as much money as possible and come back to Europe for retirement .. :-)

How about investments? What European Mustaschians invest in?

A related question.  Are IRAs or 401ks still tax-advantaged if you live in any European country?   

I've heard rumors for example in Austria and Germany that capital gains and dividends are taxed in IRA and Roth IRA accounts  like as in non-retirement accounts---the account is treated like a regular taxable account for tax purposes because there is no treaty that recognizes an IRA as a retirement account.

Investing in Austria is ridiculous. Especially through IRA/401k - which we do not really have here.

If you're living in Austria, you are able to take out a kind of insurance ("Private Altersvorsorge"... "private provision" must be a literally translated word for it). These products are issued by austrian banks and insurances. Of course, these products are not very useful for investors, because they are expensive and invest max. 60 % (probably way less than in 60 %) in stocks, and if invested in stocks mainly in austrian and/or EU stocks.

But the capital gains as well as the payout should be tax-free.

here's a google translate link to the website of Austria's stock exchange, where these products are explained. http://translate.google.com/translate?depth=1&hl=de&ie=UTF8&prev=_t&rurl=translate.google.at&sl=de&tl=en&u=http://www.wienerborse.at/beginner/zukunftsvorsorge/details-bank-austria.html

and that's an offer from one of the largest banks in Austria: http://translate.google.com/translate?depth=1&hl=de&ie=UTF8&prev=_t&rurl=translate.google.at&sl=de&tl=en&u=http://www.wienerborse.at/beginner/zukunftsvorsorge/details-bank-austria.html

How about investments? What European Mustaschians invest in?

I prefer direct stock investments.

[Albert]

As long as you get a good/great school, public school is free and good quality

I assume you know that when British people, particularly upper class, talk about a public school they mean something completely different than Americans.

Pubs in almost every village/few blocks if in a city. You can always wobble yourself home basically

Not sure if that is a pro for the locals. English boys and girls are drinking too much, I think. Particularly Friday nights, not a pretty sight in some areas...

Only huge cities sprawl it seems. And even then it's not as bad as the US. We live 13 miles from Cambridge but we're in a village. There are villages about 6 miles out of Cambridge and it's still a sleepy village. No shopping strips or no huge development.

I'm going to visit some friends in a few weeks who live in a village 8 miles out of Cambridge. I've been to Cambridge itself (long time ago), but not to the surrounding area. Good to hear that it's a nice area.

Lots of old places. It was neat to stand on Hadrian's wall :)

This I can relate to, old places still fascinate me even if most towns on the continent, including the one I was born, reach back to Middle Ages. I once had some drinks in an English pub supposedly open since the late 14th century and I haven't forgotten. A friend of mine owns an apartment in a Trastevere district of Rome. The area has been officially part of the city since the early years of the Empire, just before that Julius Caesar had his suburban villa there. Just a bit jealous :)

[Christof]

Switzerland might have another difference to the US by next week: An hourly minimum wage of $25.37 for full time employees (that's $54,000 annually). The polls are on Sunday.

[Albert]

Switzerland might have another difference to the US by next week: An hourly minimum wage of $25.37 for full time employees (that's $54,000 annually). The polls are on Sunday.

It will not pass. Not even close according to all the latest polls.

[Lyssa]

I don't really know if Europe has managed to find a way to tax net worth. Have they?

[...] In Germany we used to have a tax on net worth and it's coming up regularly. Most people here are qctually in favor of such a tax. You are just not supposed to accumulate wealth to live off it. And why would you if you can work until 67 and get some lousy benefits in retirement...

Exactly, why would anybody... :-)

I simply don't "get" my fellow Germans when it comes to money and wealth. While you get far less strange looks and negative comments for being frugal than in the U.S. (e.g. CC debt is almost universally regarded as undesirable and if you are swamped in it you would in most peer groups not publicly complain about your situation, as you would know what kind of answers you were most likely to get), a high personal networth, especially if self-managed and not tied up in insurance contracts, is met with suspicion at best and hostility at worst. This is somehow linked to the very wrong idea Germans have about legitimate investments (saving accounts, insurances) and bad filthy speculation (stocks, funds etc. Basically anything other than saving accounts and insurances).

The model citizen is somebody who enters work at 18-28 (we have long professional or academic education terms), consumes - but not to much, dutifully pays taxes, saves for a house, gets himself a couple of insurance contracts (there are insanely expensive contract that combine a mortgage with an insurance...), works till 63-67, dies and leave a nice - but not too nice - sum to his children.

When (hopefully) reaching FI in my late thirties, early forties I expect a lot of _very_ confused looks, fake smiles and a strong undercurrent of "she must have cheated somehow...".

[Grog]

Switzerland has a tax on net worth (0.1-0.5% per year) but no tax on capital gain, none whatsoever.

Dividend are added to normal income and taxed conseguently.

All in all is not a bad place to strive for RE. But decent mutual fund are lacking, you can only work with ETF.

[Christof]

I simply don't "get" my fellow Germans when it comes to money and wealth.

It's difficult.... Just yesterday I was told that investing in shares is like playing roulette, so bad, sneaky and dishonest, while playing lotto is considered to be honorable. Most people just never seem to make the connection that buying a share means buying part of a company.

[Albert]

A funny conversation I had today in the office. It started about something else, but we ended up talking about money, retirement etc. A co-worker (very well compensated) proclaimed that she'd never invest her money in stocks. Only capitalists would do that and all this funny money is a root of evil in the world. I just laughed and didn't argue. Despite some weird opinions she is a pleasure to work with.

[DaKini]

This is somehow linked to the very wrong idea Germans have about legitimate investments (saving accounts, insurances) and bad filthy speculation (stocks, funds etc. Basically anything other than saving accounts and insurances). 

Exactly what i experienced too. It is noteworthy that there are more whole-live insurance contracts than citicens here while we only have about 13% of the population older than 14 owning stock or funds.
Part of the problem may he wrong and lacking financial education along with a strong belief in experts and advisors, usually the local bank that sells everything from accounts to insursnce. Also, owning a house is considered (and advertised as) "the retirement saving vehicle".

[Malaysia41]

May i politely repeat my question from above:

How is basic financial education in the US?

As my post is refferred here, i added a short sentence and fixed typos :)

In US we used to be taught 'Home Economics'.  But it was rudimentary: writing checks, balancing a checkbook, creating a budget.  No discussion of investing, insurance, taxes, planning. 

I've come to learn that even this basic class has been cut from curriculums in order to spend more time on STEM (Science Tech Engineering Maths).  I'm starting to wonder if in fact, there is some movement to NOT teach personal financial planning in order to create masses of wage slaves who work til 65.  I'm no conspiracy theorist so I don't actually think so, I'm guessing it is a combination of incompetence and focusing on the wrong things versus intentionally keeping our students ignorant.  But...

[Left]

home economics? I never took it and I grew up in the US... write a checkbook? Sure I just fill in what each lines says but on actually doing it? I might be able to :D I normally just do it online or call/go in to bank and have them write me a check (since it's free). I haven't had to use a checkbook anywhere except for the DMV because they charge a fee for using credit cards, so I just bring cash instead.

I actually heard more on investing than I did on actually saving, not index funds though.

I'm not entirely sure I buy the high european tax system though, at ~30% average tax in the US (federal and state), and having to save for health insurance and education, I'd say the tax burden is about equal. It's just that european system is up front about it, like the tip system where it's built into the food price and not "added" later so the waitress can be "paid" less. Even though they should still make minimum wage with tips, who knows how accurately that is tracked?

I have a life insurance policy that family bought for me when I was a child in Taiwan. I "think" it is about $300k USD but I can't access it until I'm 60 (I don't have to wait until I die). I said I think because my mother's side of family is holding the policy for me because I can't manage it without being in Taiwan and since they paid fully for me I don't really count on it even though I know they'll sign it over to me later and my name is on it so they can't use it anyways. But it was a policy where you paid into it for 20 years and then it grows with the government bonds until I'm 60 (or died if earlier). Family bought one for each member and that was going to be our retirement policy when we retired later, I didn't even know I had the policy until I was in my 20s when I went over to visit them and they told me since they didn't know when I would be back to visit. From what I've heard, the US had this type of policy about 20-30 years ago but the insurance companies lost money and stopped offering them. But if the European insurance policies are like this, I really don't mind it. It's a good life insurance policy and retirement policy all in one. You get money if you die young or you can use it to supplement social security (don't know what europeans call it, national pension?). I had hoped that Obama's myIRA was copying this but it doesn't. I also wished that social security money isn't used to fund anything other than SS payments but it is.

But aside from the "uprfront" high taxation in europe, I don't know why it's harder to save for retirement so I'm keeping a watch on this thread as well. Reading articles, it seems like the disposable income in europe is about the same as in the us so both people have about the same ability to save right?

I assume you know that when British people, particularly upper class, talk about a public school they mean something completely different than Americans.

want to explain this to an american? I've heard people say this before but haven't really heard what they mean then, is this accurate from wiki?
https://en.wikipedia.org/wiki/Public_school_%28United_Kingdom%29

[Albert]

But aside from the "uprfront" high taxation in europe, I don't know why it's harder to save for retirement so I'm keeping a watch on this thread as well. Reading articles, it seems like the disposable income in europe is about the same as in the us so both people have about the same ability to save right?

It's the investing part which is easier in US not saving. Also many countries here have pretty good pension systems. Paying for them is mandatory and they provide a comfortable standard retirement, but are not suitable if you dream of leaving the workforce in your 40-ties.

[Left]

I figured the pension system was what social security is in US, minus using funds for other government projects. which also isn't good for ER goals
so there isn't a good investment system in europe? I mean for after-tax money? How can the european stock markets run without a investment system?

I'm getting the feeling that there isn't many pre-tax options and I won't comment on this, I simply have nothing to say about it except it sucks if it's true.

edit: just wondering, do europeans working for american companies have access to their 401k plans? I'd assume the americans working overseas there have 401k option but I don't know if the plans expand to europeans since the 401k would be held in america but that shouldn't require citizenship since it isn't a government thing. Maybe it's so europeans can't "hide" taxable income from their own government if it isn't open to them?

edit again: I know I said I wouldn't comment but now that I'm speculating... can you open an investment account in any EU country or only in the one you have citizenship to? Since roth ira's are taxed already, couldn't you let it get taxed then move money to a country where they don't tax as heavily to replicate a roth account? Since as an American, when I retire I'll most likely move oversea for part of the year and move part of my investments there to withdraw from. I see nothing in the US law saying that I can't do that. I don't know if oversea companies would take my investment money but I don't know why they wouldn't

[iris lily]

I assume you know that when British people, particularly upper class, talk about a public school they mean something completely different than Americans.

want to explain this to an american? I've heard people say this before but haven't really heard what they mean then, is this accurate from wiki?
https://en.wikipedia.org/wiki/Public_school_%28United_Kingdom%29

Well the wiki is never wrong, haha, not. While I won't dispute what it says, I have a different take.

I like this explanation of the term "public" in schools: For a couple of centuries, sons of gentlemen were always educated at home, by tutors. Then a movement began to have these young men educated "publicly" which meant sending them out into the world for their schooling.

Today's toney "public" schools are still tied to the aristocracy and people with money, they are prestigious and expensive. They are what we call "prepatory" schools in the U.S.

[Albert]

I figured the pension system was what social security is in US, minus using funds for other government projects. which also isn't good for ER goals

It's a lot better than that in most countries. For example, I'm currently promised ca 60k a year if I work till 65 and I don't have an outrageously high salary. Of course it's not for free, I pay about 7% of my salary for the pension fund.

so there isn't a good investment system in europe? I mean for after-tax money? How can the european stock markets run without a investment system?

I'm getting the feeling that there isn't many pre-tax options and I won't comment on this, I simply have nothing to say about it except it sucks if it's true.

There are, but I think what you have is better. Nothing quite like Vanguard here. I don't want to generalise too much here either because this is very country specific.

edit: just wondering, do europeans working for american companies have access to their 401k plans? I'd assume the americans working overseas there have 401k option but I don't know if the plans expand to europeans since the 401k would be held in america but that shouldn't require citizenship since it isn't a government thing. Maybe it's so europeans can't "hide" taxable income from their own government if it isn't open to them?

I'd assume no, but in any case you don't want anything to do with US based investments if you are not living there or are not American citizen. At least not in Switzerland... It will make you liable for US tax, banks might refuse to have you as a customer (for fear of being investigated by US authorities) etc.

edit again: I know I said I wouldn't comment but now that I'm speculating... can you open an investment account in any EU country or only in the one you have citizenship to? Since roth ira's are taxed already, couldn't you let it get taxed then move money to a country where they don't tax as heavily to replicate a roth account? Since as an American, when I retire I'll most likely move oversea for part of the year and move part of my investments there to withdraw from. I see nothing in the US law saying that I can't do that. I don't know if oversea companies would take my investment money but I don't know why they wouldn't

I have no idea really, never thought about opening an investment account in a place where I neither live nor have a citizenship. The only obvious thing is that you don't need to be a citizen, just being a resident is enough (same as in US).

[Albert]

I assume you know that when British people, particularly upper class, talk about a public school they mean something completely different than Americans.

want to explain this to an american? I've heard people say this before but haven't really heard what they mean then, is this accurate from wiki?
https://en.wikipedia.org/wiki/Public_school_%28United_Kingdom%29

I like this explanation of the term "public" in schools: For a couple of centuries, sons of gentlemen were always educated at home, by tutors. Then a movement began to have these young men educated "publicly" which meant sending them out into the world for their schooling.

Today's toney "public" schools are still tied to the aristocracy and people with money, they are prestigious and expensive. They are what we call "prepatory" schools in the U.S.

That's as good an explanation as it gets. It could also be added that traditionally many of those places were boarding schools with pupils living there during the week.

[Lyssa]

I figured the pension system was what social security is in US, minus using funds for other government projects. which also isn't good for ER goals
so there isn't a good investment system in europe? I mean for after-tax money? How can the european stock markets run without a investment system?

Corporate and foreign investors. They don't consider stocks filthy. :-)

I'm getting the feeling that there isn't many pre-tax options and I won't comment on this, I simply have nothing to say about it except it sucks if it's true.

It's true. And it sucks. Without a "Riester insurance" or similar BS you are going to pay the capital gains tax. Only for realized gains though, not for increase in book value. There also is no German counterpart for Vanguard. ETFs got popular with more knowledgeable private investors in the last ten years. 0.25-0.75 TER is not as nice as Vanguard but a lot nicer than the local bank's front load plus 1.0-1.5 TER options.

edit: just wondering, do europeans working for american companies have access to their 401k plans? I'd assume the americans working overseas there have 401k option but I don't know if the plans expand to europeans since the 401k would be held in america but that shouldn't require citizenship since it isn't a government thing. Maybe it's so europeans can't "hide" taxable income from their own government if it isn't open to them?

I work for a NY LLP and have no access to its 401k. Don't know if its possible to give us access. Probably not as this would mean tax evasion for the employees and "banking business" (i.e. license requirement) for the employer.

edit again: I know I said I wouldn't comment but now that I'm speculating... can you open an investment account in any EU country or only in the one you have citizenship to? Since roth ira's are taxed already, couldn't you let it get taxed then move money to a country where they don't tax as heavily to replicate a roth account?

You can move your capital anywhere you want but if you spend more than 50% of the year in Germany all your assets are subject to German tax law. If you spend more than 50% of the year in a single different country, you're out. Both for income and capital gains tax. That's why quite a few German celebrities live in Switzerland or Austria. CEOs would probably like to as well but can't since they need to be physically present a lot of the time.

[Ayanka]

To the other Europeans: make sure you very thoroughly research that there are really no tax deferred options before assuming so. If you add everything I could find up, its about 3k a year that gives a tax discount. This is investments, not your own house, that is another box. So doing enough research to assure you have every possible box full, might be worth the time.

[Panly]

There also is no German counterpart for Vanguard. ETFs got popular with more knowledgeable private investors in the last ten years. 0.25-0.75 TER is not as nice as Vanguard but a lot nicer than the local bank's front load plus 1.0-1.5 TER options.

There are several  Vanguard ETF's with Irish domicile  that are tax compliant in Germany:
https://www.vanguard.co.uk/uk/portal/investments/etf

[Panly]

I'm not entirely sure I buy the high european tax system though, at ~30% average tax in the US (federal and state), and having to save for health insurance and education, I'd say the tax burden is about equal. It's just that european system is up front about it, like the tip system where it's built into the food price and not "added" later so the waitress can be "paid" less. Even though they should still make minimum wage with tips, who knows how accurately that is tracked?

Entering the data of this weeks' MMM/Frugal Toque blogpost in a gross-net calculator for Belgium,  ONLY income, payroll & health tax add up to 45,5% of gross income.   
I guess you might also know that sales tax (21% )  and fuel taxes (petrol costs 1,60euro/liter) are way higher.   

And if you buy (horribly overpriced) real estate, don't forget to add at least 13% transaction tax.



Anyway, comparing "average" tax  is misleading, since a few extremely high incomes skew the US tax take upwards.

Such comparison would ignore that the highest tax brackets kick in much faster in Europe,  taxing the median income earners much harder than people with similar income levels in the US.   




 

[Lyssa]

There also is no German counterpart for Vanguard. ETFs got popular with more knowledgeable private investors in the last ten years. 0.25-0.75 TER is not as nice as Vanguard but a lot nicer than the local bank's front load plus 1.0-1.5 TER options.

There are several  Vanguard ETF's with Irish domicile  that are tax compliant in Germany:
https://www.vanguard.co.uk/uk/portal/investments/etf

Thanks! I'll research if those are listed with a stock exchange where I can place orders.

[Ayanka]

I'm not entirely sure I buy the high european tax system though, at ~30% average tax in the US (federal and state), and having to save for health insurance and education, I'd say the tax burden is about equal. It's just that european system is up front about it, like the tip system where it's built into the food price and not "added" later so the waitress can be "paid" less. Even though they should still make minimum wage with tips, who knows how accurately that is tracked?

Entering the data of this weeks' MMM/Frugal Toque blogpost in a gross-net calculator for Belgium,  ONLY income, payroll & health tax add up to 45,5% of gross income.   
I guess you might also know that sales tax (21% )  and fuel taxes (petrol costs 1,60euro/liter) are way higher.   

And if you buy (horribly overpriced) real estate, don't forget to add at least 13% transaction tax.



Anyway, comparing "average" tax  is misleading, since a few extremely high incomes skew the US tax take upwards.

Such comparison would ignore that the highest tax brackets kick in much faster in Europe,  taxing the median income earners much harder than people with similar income levels in the US.   

Yes, we are having a problem with taxes on gross income.

However I don't agree with the rest of your post. Sales tax can be 6, 12? or 21% depending on the scale. Remember when they rescaled elektricity recently and your bill went down? Most food is also in the 6% scale, because it is considered a necessity.

Fuel taxes are high, true, but in my opinion that is a good thing, it desencourages people to driving as much. Plus we have a more or less safe public transport, compared to the greyhound busses in the US and the absence of public transport in most rural areas. Not to say the NMBS doesn't have its own problems.

About the tax levels being lower in the US than inhere... well... wait till they have done the correction they need to do in order to get their balance sheet to be breakeven and then complain we pay too much tax. Belgium isn't doing bad, not doing great either, but so far we are ploughing along.

[Polaria]

I will talk a bit about my native country, Belgium.

In Belgium, if you are single/unmarried and without children, your income tax is extremely high, one of the highest - if not the highest - in the world.

If you are married with children, I think Belgium is actually a good place to be.

About transportation: for the vast majority of employees, public transportation costs between home and work are totally covered by the employer.

About real estate: if you buy a newly built property, you will generally have to pay 21% VAT instead of the registering costs (which are 10% or 12.5%, depending if it's Brussels Area, Wallonia or Flanders).

In South-East Brussels, property prices are pushed up due to the vicinity of Europeans institutions and the buying power of the European public servants. The prices there for the average Belgian family are just unaffordable. Then there is the rest of Brussels, where the prices are more reasonable but erm... the reputation of the municipalities over there is generally not brilliant. I can't really talk about the rest of Belgium, I lived in Brussels all the time I was there.

[Albert]

Taxes vary a lot on this continent... I pay about 20% in various taxes (income mostly), 7% in pension fund and ca 5% for health insurance. All that on income ca 70% above the mean. Considering all the services we get not bad at all.

[Polaria]

Taxes vary a lot on this continent...

I totally agree. The website of the OECD is a great source of information on this topic. They have set up a comparison tool:
http://www.oecd.org/belgium/taxingwages-belgium.htm

[pom]

Not much said about France

Opportunities:

Health care is one of the best in the world and real cheap. Approximately an out of pocket of 500€ a year for my family of two.

Share savings plan (PEA): you can buy for up to 150k of shares with post tax money. Income and capital gain is taxed at 15% if the account has been started more than 8 years ago (technically you can pu 1€, wait 8 years then put 149 999 and all future gains/income has the low tax).

Small and Medium size companies share savings plan: same thing as PEA but max is 75k and investment is restricted to small/medium companies.

PERP: is like a regular IRA (deductible at entry, taxed at exit) but for now the rules are complicated for banks and insurers to implement it which results in crazy high fees. I stay clear of if for now but I hope that it changes at some point in the future.

Unemployment benefits and job protection: it is to blame for high unemployment but if I look at it egoistically, it is been great for me as far as increasing my sense of security. I was never laid off but if I was they would have to pay me 6 months pay non-taxable and I would be eligible for 70% of pay for 23 months. For me that is 50 000€ + 5 800€ a month for 23 months ... insane.

Education is almost free so I don't need to worry about that once we have kids.



Disadvantage is of course the high taxes and high price for real estate around Paris.

[Kaktus]

I don't know if living on investment income in Finland is really a feasible option. Probably not, if your nest egg is five figures.

Investment income tax is 30%, and 32% for income over 40 000. Working part-time and saving a nest egg for big things is better option, because one would get a tax percent much lower than 30%. That is the option I'm going to take.

Our retirement funds are managed nationally. 5,55% of salary (if the person is 53 or younger, 7,05% for older and the employers will pay too) is taken straight out as a tax, and invested to pay for those people's retirement who are retired right now. So every generation must hope their children are going to continue same system and pay for them. If they aren't, we will not be able to retire.

We do have a special saving account option for retirement, but goverment is very worried about people retiring too early and keeps changing the tax laws about it. Two years ago people who had the account, could start cashing their savings at 63, but goverment changed the age to 68. Now nobody wants to open those accounts, because we can't be sure if the age limit will be 84 by the time one wants retire.

I'm a social worker with Master's degree and my salary is 2 670€ monthly. Medium wage is around 2800. My taxes from that are: 21% of municipal tax, 1,75% church tax, 21% for goverment tax, 0,5% of unemployment insurance, 5,55% for national retirement funds, 2, 32% for sickness benefit. Plus 140 euros for national television tax yearly (progressive tax). We also have VAT of 24% for everything, 14% for groceries, and 10% for culture & sport services and medicines. Goverment tax is progressive, but municipal tax isn't. I don't have to pay property taxes because I'm living in apartment.

On the plus side, we have very cheap health care (hospital care and medicines max 1400 euros in a year, and parent can combine her expenses with child), free education (I have two free Master's degrees), 9 month of paid maternity/paternity leave and option to stay at home with small allowance until child is 3. Our welfare state is crumbling badly, and the consensus is that most people would happily pay more taxes if we could have decent care for old people etc. EU's free competition ideology ruined our former social care standards.

[Albert]

I'm a social worker with Master's degree and my salary is 2 670€ monthly. Medium wage is around 2800. My taxes from that are: 21% of municipal tax, 1,75% church tax, 21% for goverment tax, 0,5% of unemployment insurance, 5,55% for national retirement funds, 2, 32% for sickness benefit. Plus 140 euros for national television tax yearly (progressive tax). We also have VAT of 24% for everything, 14% for groceries, and 10% for culture & sport services and medicines. Goverment tax is progressive, but municipal tax isn't. I don't have to pay property taxes because I'm living in apartment.

On the plus side, we have very cheap health care (hospital care and medicines max 1400 euros in a year, and parent can combine her expenses with child), free education (I have two free Master's degrees), 9 month of paid maternity/paternity leave and option to stay at home with small allowance until child is 3. Our welfare state is crumbling badly, and the consensus is that most people would happily pay more taxes if we could have decent care for old people etc. EU's free competition ideology ruined our former social care standards.

I've never fully understood how people are able to live reasonably well with such enormous tax rates and not that amazing incomes in Scandinavia. Given your numbers you only have ca 1,300 euros left and everything is so expensive in Scandinavia… The same is the case in Switzerland (my 2 room apartment is ca 1,100 euros/month), but there is more left…

And you want to pay even more taxes?????

[NearlyThere]

I live in Northern Ireland, technically the UK, but thats not a discussion for now, or ever for that matter.

For investments, we have a Vanguard option called life strategy. It options range from 20% to 100% equities vs bonds. I currently have all my investments within the Vanguard life strategy 100% equity account. I'm a while from FI, so the risk/reward ratio is justified.

Schooling and Health care are fantastic. I have private medical, but thats solely for loss of ability to work and the required speed of recovery I would need. In FI, I'll rely solely on the National Health. I was public schooled and and I so were 100% of my friends. Our education system has helped me be who I am today. I can't knock it.

[Kaktus]

I'm a social worker with Master's degree and my salary is 2 670€ monthly. Medium wage is around 2800. My taxes from that are: 21% of municipal tax, 1,75% church tax, 21% for goverment tax, 0,5% of unemployment insurance, 5,55% for national retirement funds, 2, 32% for sickness benefit. Plus 140 euros for national television tax yearly (progressive tax). We also have VAT of 24% for everything, 14% for groceries, and 10% for culture & sport services and medicines. Goverment tax is progressive, but municipal tax isn't. I don't have to pay property taxes because I'm living in apartment.

On the plus side, we have very cheap health care (hospital care and medicines max 1400 euros in a year, and parent can combine her expenses with child), free education (I have two free Master's degrees), 9 month of paid maternity/paternity leave and option to stay at home with small allowance until child is 3. Our welfare state is crumbling badly, and the consensus is that most people would happily pay more taxes if we could have decent care for old people etc. EU's free competition ideology ruined our former social care standards.

I've never fully understood how people are able to live reasonably well with such enormous tax rates and not that amazing incomes in Scandinavia. Given your numbers you only have ca 1,300 euros left and everything is so expensive in Scandinavia… The same is the case in Switzerland (my 2 room apartment is ca 1,100 euros/month), but there is more left…

And you want to pay even more taxes?????

I get deductions for several things like having three children, commute distance etc so my net salary is 1800 euros. Not as bad as 1300, fortunately.

The idea behind public services was that they should be so good that nobody would need to pay for private service. If it were still true, I would happily pay more.

Nine years ago we used to have special tax called "varallisuusvero" for people whose net worth was more than 250 000. It might come back, at least it is discussed every year when goverment decides next year's taxation.  So I don't really think Finland is reasonable option for living on investment income if the nest egg isn't really big.

[DaKini]

There also is no German counterpart for Vanguard. ETFs got popular with more knowledgeable private investors in the last ten years. 0.25-0.75 TER is not as nice as Vanguard but a lot nicer than the local bank's front load plus 1.0-1.5 TER options.

There are several  Vanguard ETF's with Irish domicile  that are tax compliant in Germany:
https://www.vanguard.co.uk/uk/portal/investments/etf

Thanks! I'll research if those are listed with a stock exchange where I can place orders.

Sounds good, will check this too!

[edit] I think via DKB-Broker i can purchase them OTC ("außerbörslich") for a 10 EUR charge (for investments below 10k EUR, above that its 20 EUR charge). That sounds good and i will probably switch over  my portfolios emerging markets part. For Europe i use the ishares STOXX 600 one with a TER of about 0.2 (not much more but about 100 more stocks in it, so a little more diversified).
I only fear that they are not traded as regularly as the ishares ETFs.

Btw for the germans here the same site above from vanguard germany: https://www.vanguardinvestments.de/portal/site/de/de/etf#funds_tab

[iris lily]

And you want to pay even more taxes?????

She's a social worker.

[Leisured]

Lyssa, Christof, Albert and Dakini, thank you for the insights into European negative attitudes to investing in shares. I am Australian, and I suspect that most Australians would have similar negative attitudes. Many Australians do not understand that good shares pay dividends, and these dividends rise, usually, every year. They think that capital gain is the point of owning shares. Down market newspapers in Australia only publish shares prices, no info on dividends or price to earning ratios.

[Moonwaves]

I've heard that lots of small, private investors were put off by their first experiences during the privatisation of the German post office and phone company (huge gains at first then a rapidly sinking share price that went well below the initial sale price). I know that definitely applies to Ireland where I, among hundreds of thousands of others, first decided to dip a toe in the water of owning shares when the phone company privatised. I didn't expect to make a huge profit and just thought I'd at least invest the minimum and then maybe my grandchildren would benefit when I was dead. Or something. What can I say, I was very young and foolish. I had now idea that shares could be compulsorily bought back by the company. Here's an article on what happened with those shares, by the way, and explains in part, at least, why many people in Ireland haven't ever gotten into investing in shares.

[2lazy2retire]

Sourds à bit, my fellow mustaschians, like we should all move to US, get as much money as possible and come back to Europe for retirement .. :-)

How about investments? What European Mustaschians invest in?

Not always

1/  - those nice investment returns on you stache are likely to be much more heavily taxed in "Europe" ( again huge differences between countries) than in the US - those familiar with Curry Cracker website will know that a couple in the US with long term investment returns can earn up to 90K tax free in the US - not likely in many European States.

http://www.gocurrycracker.com/never-pay-taxes-again/

I did check out the UK and something similar is possible there in regard to taxes.

2/ In general everything costs less in the states and if you need smaller income withdrawal from Stache to support your frugal lifesysyle even Healthcare is subsidized - thanks Obama

3/ Much more affordable ( low fee) and transparent  investment opportunites in US for building and maintaining Stache - think Vanguard

[shelivesthedream]

Things about the US that I, as an Englishman, find batshit crazy:

- Healthcare costs. I mean seriously, you can't go to A&E even though you broke your arm because it will cost hundreds of thousands of dollars? We can budget a bit for dentistry and optician costs but even those are seriously capped and costs are waived for various low income groups.

- Petrol prices. Our petrol costs per gallon are much higher.

- Commuting times. But I reckon our spending on petrol is much the same because we just don't drive as much. Obviously it's different in the countryside, but in general our town planners do not assume that everyone is going to drive everywhere.

- Food costs? I think our food costs are higher. You can't grow food that cheaply without abusing something somewhere. We do it too, but I think not as badly as America.

- Student loans. Sure, we have tuition fees but the loans are nationalised wih an interest rate linked to inflation and an income repayment threshold so if you never earn enough, you never pay any back. Also, the amount you can borrow is limited to the amount you actually need to live on (calculated in relation to some kind of average, I suppose) so you can't take out £250,000 at 20% unless you actually try.

[londonbanker]

UK is actually quite good to savers:

You are allowed to save £40k  a year tax free in your personal pension (and up to 120k on a 3yr rolling)- very much like a 401k, and this pot is accessible as early as 55y/o, when u can take a 25% lump sum tax free, the rest would be taxable at your income tax rate... which is 20% only below 40ish k a year

You are also allowed to save £15k a year post in tax sheltered account (ISA) - like a roth i believe - which will never (at least until they change the law) get taxed, either dividend/cap,gain

Between the 2, thats effectively £45k or $75k of tax advantaged savings allowance per person, and per year, double that amount for a working couple. Thats plenty for most people.
Anything beyond that would go into a taxable account v much like the US.

Broker/investment firms are similar to the US; low annuel fees, and marginally more expensive TERs (i am currently invested in global vanguard etfs with 0.15% ter)

I believe early retirement is not that complicated for anyone working for a medium to large size corporation that pays market rate.
Tax rates aren't bad until you reach a higher level of income 40% above £40k and 45% above £150k. There are legal ways to reduce this tax rates through accounting schemes for higher level of income too.

London is expensive but salaries are by in large in line with the cost of living for people that are college educated and have a bit of seniority ( 5yrs +), out of school is a bit harder, but promotions and raises come quick, or you lose people to other companies.
Outside of london, life is more affordable despite salaries being lower... Scotland being the best ratio income/cot of living. Just shit weather :)

[2lazy2retire]

Things about the US that I, as an Englishman, find batshit crazy:

- Healthcare costs. I mean seriously, you can't go to A&E even though you broke your arm because it will cost hundreds of thousands of dollars? We can budget a bit for dentistry and optician costs but even those are seriously capped and costs are waived for various low income groups.


[/quote]

This is largely a myth - for a number of years now you cannot be refused treatment at A&E, you can however be expected to pay if you have no insurance and other assets available. A broken arm is unlikely to cost of hundreds of thousands, more in the region of 2-5k.

[wannasave]

Hi,

Great insight from this thread. I relate to everything here, since it's clear that there are differences that need to be taken into account between USA-Europe (and countries within Europe).

I see that there quite a few mustachians from Belgium, Germany, Swtizerland, France. Does any of you anything about a German financial advisory company called OVB Allfinanz? It's supposed to be a holding of over 300 financial services companies (banks, insurance companies, investmens and pension funds), that evaluate your situation and propose products for retirement. They act as advisors-brokers and charge the company (not the client) a commission for bringing them clients. I met them through a friend's friend who are both recognized financial advisors, however I've seen a few complaints (rather compainy-pantsy and not strong in arguments, but a lot of them) on the internet. I though I'd bring the topic here so I can get some feedback from experts in the matter.

They're located in Germany, Eastern Europe and Southern Europe, with regional websites for each market:

http://www.ovb.es/ (link for Spanish one)

Does anyone have any particular recommendations as to how to start investing in a fund while located in Spain? In the future I will most likely relocate to a more favorable destination in Europe but for now I want to start the ball rolling from Spain.

Best!

[pom]

Does anyone have any particular recommendations as to how to start investing in a fund while located in Spain? In the future I will most likely relocate to a more favorable destination in Europe but for now I want to start the ball rolling from Spain.

I use ING direct as my stockbroker in France, I checked and they operate in Spain.

I personally buy Lyxor funds

FR0010315770 : Lyxor MSCI world : 0,45% fee per year
FR0010261198 : Lyxor MSCI Europe : 0,30% fee per year

Some people here prefer ishare, it is up to you.

I don't know OVB Allfinanz but my suggestion is that you do it by yourself, it is cheaper and you will be in full control. Just stay calm and don't try to become wealthy quickly.

Godspeed!

[Woody]

I would second pom's statement.  Try to avoid financial advisors.  Even if they claim to do not take money from you directly,  they will earn there shares,  even by suggesting a second-best fund, by which they will get a higher kickback from the fund selling company. 
Try to keep control oved your money. Buying an MSCI World ETF is not that difficult and should be all you need to do for a great start into investment. 

Best regards from Germany
Woody

[Christof]

The owners are three different insurance companies: Generali, IDUNA and Deutscher Ring. What might an insurance owned company prefer to sell?

They also seem to make around 500 Euro for each new contract (http://www.ovb.cz/LinkClick.aspx?fileticket=vARi7jsfRLA%3D&tabid=848&mid=2244 ). That is your money, too. The annual report is an interesting read that tells you, they sell only about 2% of investment products, but 65% of provision based contracts from the owners, ie insurances.

[Scandium]

As a European living in the US the idea of working the US and retiring in Europe doesn't sound particularly appealing, unless there's a very favorable country I don't know about (totally possible). My experience is mainly with western Europe. First of the horrific taxes you'd face on your investments would require you to have a much larger nest egg. Not to mention the taxation mess.

And for what? Health care? Especially with Obamacare, I would rather pay a few thousand per year in insurance cost than have 30% shaved off my investment gains, not to mention idiocy like a 1%+ "wealth tax" on all assets in some places! And in your 60s you get medicare in the US anyway so that largely goes away.

Btw a distant family member of my wife tried to retire in Canada. No idea what they did, but they were not allowed to, somewhat understandably. Have never worked there, and will not work or pay taxes but would use their free health care? yeah I don't think so.  I imagine European countries would have similar issues with retirees coming to take advantage of their systems without having paid into it ever.

[Falconer]

I don't really know if Europe has managed to find a way to tax net worth. Have they?

[...] In Germany we used to have a tax on net worth and it's coming up regularly. Most people here are qctually in favor of such a tax. You are just not supposed to accumulate wealth to live off it. And why would you if you can work until 67 and get some lousy benefits in retirement...

Exactly, why would anybody... :-)

I simply don't "get" my fellow Germans when it comes to money and wealth. While you get far less strange looks and negative comments for being frugal than in the U.S. (e.g. CC debt is almost universally regarded as undesirable and if you are swamped in it you would in most peer groups not publicly complain about your situation, as you would know what kind of answers you were most likely to get), a high personal networth, especially if self-managed and not tied up in insurance contracts, is met with suspicion at best and hostility at worst. This is somehow linked to the very wrong idea Germans have about legitimate investments (saving accounts, insurances) and bad filthy speculation (stocks, funds etc. Basically anything other than saving accounts and insurances).

The model citizen is somebody who enters work at 18-28 (we have long professional or academic education terms), consumes - but not to much, dutifully pays taxes, saves for a house, gets himself a couple of insurance contracts (there are insanely expensive contract that combine a mortgage with an insurance...), works till 63-67, dies and leave a nice - but not too nice - sum to his children.

When (hopefully) reaching FI in my late thirties, early forties I expect a lot of _very_ confused looks, fake smiles and a strong undercurrent of "she must have cheated somehow...".

I think it has largely to do with the fact that Germans are not educated enough when it comes to the stockmarket. Most don't know about dividends or think that they are only possible because the evil corporations squeezed the poor employees dry. I used to think the same, now having learned more about the subject I changed my mind.