Going "ERE-light" in Denmark

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erechatdk
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Going "ERE-light" in Denmark

Post by erechatdk » Tue Apr 26, 2016 9:03 am

Hello everyone,

Just introducing myself, and asking some questions - you can skip to the last section for these.

I am yet another user from Denmark, I guess the recent press is causing some influx of Danes around here!

While I'm not really planning to go full "ERE" just yet, I would like to adopt some of the money managing principles to at least approach an ERE-level financial situation, or possibly allow me to work part time in the near or distant future.

So for now I want to understand which would be the smartest way to manage my current assets. I don’t want to give out the detailed numbers just yet - I’m not sure they are relevant for my questions anyway.

### Quick background info: ###
- I'm in my thirties, working full time.
- Married, children
- My wife works full time as well
- All our assets are shared except our "pensions" (what's the proper word in English?) which are separately owned (by law) in Denmark

### Income/Assets: ###
- We own an "andelslejlighed" (not sure what the equivalent English term is?) of which we have remaining debt of approx. 30% of its expected sales value
- We have a vacation home (sommerhus) in which we have remaining debt of 80% (This purchase is most likely the major obstacle to any ERE hopes I may have had for myself :) )
- I have a decent “pension” - some of it is saved as "livrente", because I have paid more than the Danish tax system allows you to pay into a "regular" retirement fund (not sure if this makes sense to other Danes?)
- My wife has a pension as well, about a third of what I have saved
- I have received stocks in a publicly listed company which are held in a brokerage account in a foreign country

### Expenses/Spending: ###
Both my wife and I are paying 5% extra into our retirement savings (by default our employer pays 10% of our salary, we pay a mandatory 5%, and then the 5% extra/voluntary).

We usually pay off all our recurring expenses and hold back a very small amount of money in our personal accounts for clothes purchases etc. - everything else we pay into our “mortgage” in the apartment to bring that down as quickly as possible. We pay only interest on the vacation home loan, until we have paid of the more expensive debt in the apartment.

- The loan in the apartment is currently at interest rate 3.2%
- The loan in the vacation home has an interest rate of 1.6%
- Both loans are variable interest rate (which is a risk to consider)
- We get tax deductions for all the expenses on interest rates

### Questions: ###
1) Where should we really be spending our money right now? Paying of the debt on our apartment/vacation home or putting them into our retirement fund? Or neither?

2) We have always paid off way more on our loans than what we “had” to. For instance, we had one loan on a 14-year run time as opposed to the standard 30 year run time. Mostly because I'm terrified of debt. But is this really wise? Should we instead borrow as much money as we possibly can and invest the money instead? I guess that would require a significantly better performance than e.g. the 3.2% interest rate? I don't think I would have the nerves to do this anyway, but just not sure if it would make more financial sense?

3) What should I do with my stock abroad? As far as I understand they will be taxed heavily here in Denmark. So should I sell ASAP and transfer the money to Denmark? (On the other hand I expect them to increase in value over the next couple of years if I keep them)

jacob
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Re: Going "ERE-light" in Denmark

Post by jacob » Tue Apr 26, 2016 9:17 am

pension = "pension" if defined benefit/fixed monthly payment for a defined time period usually until death, e.g. "folkepension" is a pension

pension = "retirement account" if it's actual money being paid out until it runs out, e.g. "kapitalpension" is a retirement account.

livrente = annuity

andelslejlighed = condo

wizards
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Location: Denmark

Re: Going "ERE-light" in Denmark

Post by wizards » Tue Apr 26, 2016 9:25 am

Welcome - nice to see more Danes

Q1: There isn't a correct answer - and it also depends on your tax situation... are you paying "topskat" ?

Q2: Again this depends.. :) - a 3.2% risk free return isn't that bad.

Q3: You will have to pay the same tax no matter what - foreign assets are taxable in Denmark as well....

erechatdk
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Re: Going "ERE-light" in Denmark

Post by erechatdk » Tue Apr 26, 2016 9:43 am

Q1 - Yes, I pay "topskat"

Q2 - Yes, that is what I tell myself as well :). However, I guess I can't really use any of the "value" that I have in the house/apartment when I have paid them off. In any case, I'm thinking I should at least get rid of the "expensive" loan in the condo before starting to save money and invest.

Q3 - I think I read somewhere else on the forum (maybe even a response by you), that stocks in a "depot" abroad is taxed more heavily than some types of investments in DK? In any case I guess the other thing I could do is sell them and use the money to pay out some of my house/apartment loans.

wizards
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Re: Going "ERE-light" in Denmark

Post by wizards » Tue Apr 26, 2016 5:02 pm

Q1: ok, then my default answer is: retirement savings/annuties are an ok way to reduce taxes and up your savings. There is other options, but this is an easy one.

Q2: I understand - but you still get som value - since your future expences will be reduced => less savings will be needed to cover your expences.

Q3: Depends, drop me a pm with the details, its hard to answer without knowing all details.

erechatdk
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Re: Going "ERE-light" in Denmark

Post by erechatdk » Wed Apr 27, 2016 2:31 am

Wrt. retirement savings, I guess the dilemma is that whatever I save here will be "locked" till I reach a certain age. On the other hand, it's probably smart to bolster this fund now in my "early" years, in case I ever go ERE and won't be able to pay more into the fund.

But keeping them in hand comes with two drawbacks I guess 1) Higher taxes and 2) I need to do something that gives a better yield than my retirement fund does (which I'm not necesarily sure I can get on my own). Except of course by paying of my mortgages sooner.

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FBeyer
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Re: Going "ERE-light" in Denmark

Post by FBeyer » Wed Apr 27, 2016 4:19 am

erechatdk wrote:Wrt. retirement savings, I guess the dilemma is that whatever I save here will be "locked" till I reach a certain age...
Yes, which is why it's generally advised to pay as much as you can into your pension, given that you're in the maximum tax bracket.
Money will grow a lot faster stowed away in a stock-pension and then taxed later, than paying the fifty something percent taxes now and investing the leftover pittance.

If you're not in a top tax bracket, the money could potentially go elsewhere.

erechatdk
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Re: Going "ERE-light" in Denmark

Post by erechatdk » Wed Apr 27, 2016 5:01 am

FBeyer wrote: Yes, which is why it's generally advised to pay as much as you can into your pension, given that you're in the maximum tax bracket.
Understood - however, due to the particular tax rules it seems that whatever I pay above some particular amount (50k DKK/year?) will be automatically stored away as "livrente"/annuity rather than into the "regular" retirement fund.

I assume this has some drawbacks? Apart from the obvious drawback of less payout if I die sooner than "average", I guess there may be some drawbacks with regard to payout to my wife/children in case I die before retirement?

I guess I'm wondering if it makes sense to pour endless amounts of money into your retirement fund, or only to a point where some too high fraction goes into livrente/annuity.

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Eureka
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Re: Going "ERE-light" in Denmark

Post by Eureka » Thu Mar 09, 2017 4:56 pm

Hi erechatdk,
I just discovered this thread. A year has almost passed so what happened to your ERE-light strategy in the meantime?

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