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Case study: another FIRE in Europe, at all possible?
Imma:
Can I ever FIRE and if so, what do I need to do to achieve it?
Life Situation: Cohabiting couple, 27 and 30 years old, no kids. I have suffered with chronic illness since I was 16 which means I'm unable to work full time. I have a Bachelor's degree in law, but to work in the law field you need to have a Master's degree. As parttime jobs in that field are rare, I decided not to pursue a Master's degree just yet. The cost for that would be about EUR 5000 and I probably will have to do a Master's degree at some point, as only having a Bachelor's degree is considered to be 'dropping out' of university. We keep our finances completely separate, so this concerns only me, but he has roughly the same income (but works many more hours a week to earn it) and the same spending pattern.
Gross Salary/Wages: About 1400 EUR / month for 20 hours a week. Monthly wage is 1212, I get one extra month's worth of salary in May and I make about one month's worth of paid overtime every year. I can physically work about 25 hours a week. My pay is low because I work parttime, but I'd make a pretty good living if I'd be able to work fulltime.
Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc. - whatever you have
This is the point. Our pension system is complicated. There are 3 pillars:
1. State pension. Right now about 750 EUR/month net each for a married couple. You need to have lived in this country for 50 years to qualify for it and so far we quality for full state pension at state pension age, which is 67 and 2 months right now. The thing is, we have an ageing population and I'm fairly sure that 40 years from now the government will not be able to afford it anymore. Also, our parents are early 60s now and I see they are struggling to continue to work and they're not even 67.
2. Company pension funds. This is how our parent's generation built up nice pensions, but many companies have stopped offering it. I have never worked anywhere that offered it, my partner has a very small amount of money somewhere from a job a long time ago. I'm not sure how much it is precisely, but I do know that in the occasion that he dies before his pension age, I'll get 100 EUR a year (yes, that's the correct amount) as a widow's pension.
3. IRA-type accounts. These are complicated in here. Pro:
1. The amount in these accounts is not liable for equity tax (1,3% tax on your equity above EUR 50.000 as a couple, your first house is exempt).
2. The amount in these accounts is exempt from any means-tested care. Think things like a nursing home or care at home, adaptations to your home etc. Considering my health, there's an above average chance I'll ever need this type of care.
3. Your contribution is tax deductable.
4. You can choose what you invest in (unlike a company pension fund, they decide for you)
Con:
1. You can only contribute a % of your income above EUR 15000 gross. As I only earn EUR 17000 gross, I can only contribute 1000 EUR a year. Still, at 40 years and a conservative 4%, that's 100.000 EUR.
2. You cannot access the money before government retirement age, which is currently 67.
3. You have to buy an annuity with the money. For EUR 100.000 you can buy a lifetime annuity of about EUR 4500 gross/year right now. Combined with my state pension, I'd have the same income as I have now, but I think it's pretty unlikely it still exists when I'm 67.
4. Considering my health, there's an above average chance that I'll not live as long as most people and that I'll be forced to quit working earlier. Right now, if I were to get disabled, my disabilty income would be EUR 925 but there have been lots of budget cuts to disability benefits over the last couple of years.
Other Ordinary Income: none
Taxes: From my regular monthly paycheck of EUR 1212, 117 EUR is deducted in income tax and contribution to social security and health care, so my take home pay is 1095 EUR. I get tax credits because I work even though I'm chronically ill.
Current expenses:
Take home pay: 1095
To joint account: 400 (partner also pays 400)
from this Mortgage 300, original sum 77900, now 74000, 28 years left at 2,2% interest
30, water and taxes on water
85, gas and electricity
33, internet and cable tv. We don't watch tv, but it was cheaper than internet-
only
95, debt to the tax man. 0% interest, 5 months to go
50, local taxes and garbage collection
15, trade union membership
6, netflix that we share with a relative
10, home insurance
30, liability and contents insurance. Expensive so it covers partner's music gear.
140, food (staples). Any kind of fancy food goes from our own accounts.
Health care: 200 (I have a special savings account for these costs. This includes insurance at EUR 1200 a year, co-pay of 400 and EUR 800 a year in physical therapy)
Investments: 125 in index funds.
Public transport: 50 . We do not have a car and our relatives all live about 40-60km away.
Sewing class: 50 (includes materials). This is my main social activity outside of work and I'm not willing to give it up
Personal tax debt: 70 0% interest, 8 months left.
Savings: 100 . No specific purpose, but our house needs a lot of work and we're working on that slowly but steadily.
Spending: 100. From this: 8, mobile phone
10, life insurance for my partner. If he dies before 2045, I get 100.000 EUR
Also: clothing, hairdresser, eating out / take-away (we don't do that often) gifts, bike repairs.
My one month's extra salary in May and overtime money generally go into my savings account or towards an expensive purchase like new shoes.
Assets:
Checking account: EUR 98 (I will get paid on the 31st)
Savings account one: EUR 2300 (emergency fund)
Savings account two: EUR 50 (health care, paid some large bills recently)
Joint savings account: EUR 325 (any money left over from joint bank account, we don't pay everything monthly) 50% ownership
Investments: EUR 1800 (in index funds, 75% stock and 25% bonds)
House: EUR 79500 (purchase price 2 years ago, in current market about 83000-85000) 50% ownership
Liabilities:
Mortgage: EUR 74000 (28 years left to go, 2,25% interest. Started at 77900, downpayment is uncommon in here. Our 2%
down is actually considered good, most people borrow more than the house is worth. Shared with
partner.
Student debt: EUR 5000 I will have to start paying this back in 2020, minimum amount will be EUR 45/month. As the interest
is fixed until 2020 @ 0,01%, I'm not paying anything back until I have to.
Tax debt: EUR 300 I will have to pay this back in August, will pay this from savings account 1.
Personal tax debt: 560 remaining, the one I pay 70/month for
Joint tax debt: 475 remaining, the one we pay 95/month for
Question: How do I FIRE asap? Is it at all possible? I don't really hate my job, but it takes a lot of my limited energy and I'd rather spend that on things I enjoy. I'm not really willing to cut back on the level of luxury we have now, unless there's an extremely good rational argument for that. For the first time in my life I have the feeling I'm financially comfortable and I'd like to keep it that way.
As for all the tax debts: income taxes are deducted from your monthly payments and when you earn more, you'll have a tax debt next year. I don't expect any big income increase in the next few years. I'm already earning quite a lot for what I do and it's hard to find a parttime highly skilled job. Most parttime jobs around here are low paid and low skilled. I'm currently working in an accounting department, but to really get on in that field, I'd need to get a degree in finance and a second Bachelor's degree would cost me about EUR 15000 that I'd have to take out student loans for. The other option would be a Master's degree in something like Tax law, which would cost me about EUR 5000. I'm not extremely interested in either field, but I've worked in finance for about 5 years now and I don't hate it.
PapaBear:
Just out of curiosity: Which EU country are we talking about? I'm asking because of the equity tax you have mentioned. I always thought that France is the only country left with a wealth tax. Or are you talking about a property tax?
Regarding your question:
I used the simple estimator promoted in this article: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
With your current savings rate of ~20% of your net salary, it would take you about ~37 years to retire (not accounting for your state pension or any current assets). Not so great. (see https://networthify.com/calculator/earlyretirement?income=13140&initialBalance=0&expenses=10440&annualPct=5&withdrawalRate=4)
However, after you are done paying back the tax debts and put the surplus towards your investment, your savings rate increases to ~31%, et voilá, it is just ~27 years to retirement. That sounds a bit better (https://networthify.com/calculator/earlyretirement?income=13140&initialBalance=0&expenses=9030&annualPct=5&withdrawalRate=4)
Please note that this is a very simplified answer, as it does not factor in your current assets, state pension, potential salary increases, taxes or any increases in your expenses or salary (I took your current take home salary as the base line and calculated your current savings rate based on that). On the other hand, the calculator shows the powerful impact of your savings rate on your retirement date. For a bit more detailed calculation including your current assets and your expected state pension, you can use http://www.firecalc.com/ or http://www.cfiresim.com/
Now regarding the how:
I guess the biggest issue for you is not the spending side, as your spending is already somewhat low (at least from my perspective, what is the average cost of living in your local area?). Thus, you would need to focus on the income side:
- Can you qualify further for a more skilled job that is within your requirements? What would be salaries for a part-time job with a masters degree?
- Is it possible for you to add a low-stress side gig that would bring in additional money?
- What about your partner? Any possibilities for drastic salary increases or side gigs there?
By the way: In your shoes, I would pause the investing for a few months and pad the emergency and healthcare fund a bit more. Given your condition and since you own real estate, a bit higher emergency cushion might be advisable. Think about a worst case scenario - e.g. you get a high medical bill and your heating system in your house breaks down at the same time - what would that do with your cash flow?
havregryn:
Also curious about the country.
Your insurance payment sounds high...it's 40€ a month total and that sounds insane to me regardless of what kind of equipment there is since we pay something like 25€ a month for a very comprehensive insurance in Luxembourg (so king of all expensive in the EU)
I don't understand the tax debt stuff, but does that mean that it is too optimistic to really assume that 1095 is your actual take home salary, i.e. is it reasonable to expect more tax corrections?
As said, you probably can't reduce your spending much, you would need to increase income.
If you live in a house, is it big enough to get a roommate?
Are you in a location where Airbnb could be a thing?
Imma:
Thanks for your replies! I'm in the Netherlands.
PapaBear: you are right, my emergency fund is on the low side. The reason for this is that we only get about 0,2% interest on in. My partner roughy has the same amount of money in his savings account and our investments can be sold off at any point, so the total amount of money that's directly available would be about EUR 6000. Once I've paid my 1200 EUR insurance premium I only have to pay for the first EUR 400 costs out of pocket. After that, my insurance pays everything, but not dental care or physical therapy. Since I have just paid my yearly physical therapy bill, the only thing health-wise that could happen is maybe an emergency dentist trip. That wouldn't generally be more expensive than EUR 250. Our heating system is still under warranty and the white good we own are second hand and we have no problem buying them second hand again. In case of major damage to our home, we have a good home insurance with only a EUR 250 deductible. Our roof is only about 5 years old. We don't have car. I do try to slowly add to the emergency fund as I'd like to have some more money in a directly available account, so that's where the EUR 100 / month goes.
I think we're already living pretty frugally on the spending side, at least, everyone else thinks we're crazy which is a good sign.
We definitely have a wealth tax (vermogensrendementheffing) in the NL. For a couple, the first 50.000 EUR and your family home are exempt, but over that you pay 1,2%. Right now we don't have to pay it, but if you keep your investments in accessible accounts like I do, it's going to cost you a lot of money at some point in the future. We also have a property tax but that's hidden under "local taxes" as the amount of local tax you have to pay is a % of the value of your home.
I'm off to work now, will reply later to the other questions :)
havregryn:
Hm, if you're in the Netherlands and you say your boyfriend earns the same as you for many more hours, isn't he quite underpaid? That sounds really low for Netherlands even though I don't have any first hand experience of it.
Based on yours and some other posts I've read Netherlands sounds like a bit of an outlier compared to countries in the neighborhood, you guys seem to be paying way more for health insurance and education than the rest of us (also daycare I think for those who have kids). I wonder what do you get in return, do you pay a lot less tax lol? I mean, I lived in Austria, Sweden and Luxembourg and in none of these places do you pay for healthcare if you work or you are a dependent of someone who works, and you'd only need to pay money for a master degree if you wanted something special and fancy or from a private school.
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