Author Topic: Part time as alternative to FI for higher tax countries?  (Read 2506 times)

Rusty_55

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Part time as alternative to FI for higher tax countries?
« on: November 20, 2016, 08:26:31 AM »
I'm still new, but as I couldn't find any similiar topic via the search function, I thought create a new one.

An important issue in FI is of course tax. Without being an expert, people in the US appear to have pretty good circumstances regarding this (low income tax and low tax on capital gains and passive income).

I live in Denmark. Like many other European countries that tax conditions are pretty much opposite to what you have in the US. This allows other good things like free health care and education, but to state a fact, it is negative when it comes to achieving FI.

I'm 34, married with two kids, decent education and job. Without wanting to go into too many details, I have estimated that I _could_ stop working around age 50 if I went more extreme than I already have gone on MMM principles. I delibrately wrote stop working and not FI at 50, because I have calculated that I would at that point have a stash that would last until the earliest possible payout of my private/employees pension at age 63.

So no 4% rule, just enough to sustain my wife and I for 13 years.
That would be nice, but I am (I guess like many people) seriously impressed by the way that MMM has freed himself and his wife to spend time with their son.
In my case, stopping work at 50 would mean that my children would be grown up and probably left home at that point. Being "semi FI" at 50 would be great, but somehow I feel that this would be missing the whole "freedom with your family issue".

That got me thinking about working part time. In DK we have a kind of scalable tax system, meaning that in reality I receive only around 30% of my pay above a certain level. Effectively I could take a 20% pay cut without it seriously affecting my take home pay (especially after implementing some MMM principles on our fixed expenses).

It could be argued that that a 4-day work week now would be of greater value than the freedom from the need to work at the age of 50.

I can see the following drawbacks:

1. Part timers are very rare in my field (engineering), and if there were cutbacks at my current employer, I guess a part timer could easily be shown the door.

2. In terms of career advancement it would a white flag. But I've been in the business long enough not to be phased by this.

3. Getting another suitable part time job would be difficult. It would probably pay less and have less responsibilty, again I think I could deal with this.


Anybody had similiar thoughts?

Perhaps there are relevant online ressources concerning part time working?



The Happy Philosopher

  • Bristles
  • ***
  • Posts: 342
    • thehappyphilosopher
Re: Part time as alternative to FI for higher tax countries?
« Reply #1 on: November 20, 2016, 10:35:45 AM »
Part time can be excellent. I've done it and have written about it. My perspective is from the US and as a physician, so much will not apply to your situation but here are my thoughts. Be warned, this is a long post and geared towards physicians.

http://thehappyphilosopher.com/a-physicians-guide-to-working-part-time/

TL/DR: In a progressive tax system part time is advantageous at high income levels. You have to sell part-time to your employer and make it a win-win. Life is too short to be working full time unless you truly love your job.


Goldielocks

  • Walrus Stache
  • *******
  • Posts: 7062
  • Location: BC
Re: Part time as alternative to FI for higher tax countries?
« Reply #2 on: November 20, 2016, 12:32:49 PM »
I would need to see the rates, etc. that you are talking about...  some of this may be in your head and you actually can save money for FIRE.  Many people here are not high earners, and the US "tax" of paying for your own health care is a huge burden keeping them at employed jobs.

I do know that here, I turned down a good job offer  with the government health here, because of a mandatory pension contribution and the fact that it did not pay out until age 60 plus, and then combined with my other savings, I would receive the same retirement income (or more after splitting income for taxes) as during my working life.  Yet my costs were the highest when I had a mortgage and child care.

I also know that the taxes in Norway, when I lived there, were astronomical on imported goods, but if you don't buy much, then you can just not pay as much....

But yes, part time work until age 65 or older is what many of us are considering, out of interest if not always out of need for money.

marty998

  • Walrus Stache
  • *******
  • Posts: 7372
  • Location: Sydney, Oz
Re: Part time as alternative to FI for higher tax countries?
« Reply #3 on: November 20, 2016, 01:29:34 PM »
Part time can be excellent. I've done it and have written about it. My perspective is from the US and as a physician, so much will not apply to your situation but here are my thoughts. Be warned, this is a long post and geared towards physicians.

http://thehappyphilosopher.com/a-physicians-guide-to-working-part-time/

TL/DR: In a progressive tax system part time is advantageous at high income levels. You have to sell part-time to your employer and make it a win-win. Life is too short to be working full time unless you truly love your job.

A progressive tax system makes the numbers better for part time work. I've done some rudimentary maths that based on marginal tax rates I could drop to a 4 day week and it would cost me only 16.5% of net pay, instead of 20%.

It works out "better" the more days you drop.

Syonyk

  • Magnum Stache
  • ******
  • Posts: 4610
    • Syonyk's Project Blog
Re: Part time as alternative to FI for higher tax countries?
« Reply #4 on: November 20, 2016, 02:47:44 PM »
I'm currently working 32h/wk from home.  It's very nice having an extra day every week to spend with my family, or for random side income generating projects.

deborah

  • Senior Mustachian
  • ********
  • Posts: 15962
  • Age: 14
  • Location: Australia or another awesome area
Re: Part time as alternative to FI for higher tax countries?
« Reply #5 on: November 21, 2016, 11:18:37 PM »
It depends upon the form of retirement you really want. If you want it completely and as soon as possible, the more you earn (for a given expenditure level), the sooner you retire. If you are happy having more time to yourself every week, but still being obliged to work every week, part time is a good way to go.

There are various problems with part time work. Often (although not overtly) part timers are overlooked when it comes to pay increases, are thought of as being not as committed etc. Secondly, you need to look at your various entitlements and how they are affected by part time work. Where I used to work, if you were part time on your birthday, you lost a significant amount of retirement benefits (I was thinking of working part time for a year before I retired, and was advised to work part time for only 10 months because of this provision). Thirdly, there may be no positions which are open to part timers, or work can change so this is so (it happened that a friend was on leave from part time, and when she returned there were no part time jobs allowed at her level), making part time a less secure form of employment.

dreams_and_discoveries

  • Pencil Stache
  • ****
  • Posts: 924
  • Location: London, UK
Re: Part time as alternative to FI for higher tax countries?
« Reply #6 on: November 22, 2016, 03:17:16 AM »
Yeah, in the UK the progressive nature of tax means part time working is much more profitable.

I work contracts, and I see a lot of people take say a 1 year contract, over two tax years, then take a year off. Or work winter and take summers off, or work summer and do a ski season in winter.

So I see people working part of the year happily - as for part time throughout the year, like 20 hours each week, I'd agree there are less high level jobs with this working pattern - job sharing can work, but lots of jobs need the 5 day a week coverage.

Personally, once I get to my number I'm off to explore the world, I wouldn't rule out coming back after a few years and doing a 6 month/year contract if a good one came my way.

Intrigued

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Part time as alternative to FI for higher tax countries?
« Reply #7 on: November 25, 2016, 11:02:38 AM »
UK again so 41% tax on the highest earnings. Went down to a 4 day week as I've got young kids.

It's a luxury to have but relatively comfortable financially and allows me to spend time with them when growing up, simple things like swimming, toddler classes etc plus allows us to get jobs done so you can properly enjoy weekends catching up with friends and family or taking trips.

Also been a blessing with a new born as it allows my wife to have a breather and support when dealing with two children.

Wife is part time so ultimately may switch to separate days off with the kids in the week thereby reducing childcare when they are little. If you add childcare to the 41% then you aren't losing too much by going part-time.

You do have to get the work right and not do a 5 day week in 4 but tech helps and there probably is an element of career advancement but for progressive employers this is now quite common plus I have the benefit of already progressing quite far in my career before going part time.

 

Wow, a phone plan for fifteen bucks!