Living in Denmark: tips, challenges and questions

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thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

@Rangle

I do not care for using the ratepension myself because of the reasons you mention.

Good:
- More money
- There could come a "cheap" early withdrawal option
- ETFs make sense

Bad:
- Have to wait until age 67-74
- Penalty for withdrawing early
- Might not be as beneficial if the capital gain tax goes down

Rangle
Posts: 8
Joined: Mon Jan 09, 2017 5:24 am

Re: Living in Denmark: tips, challenges and questions

Post by Rangle »

@thedollar

It seems we landed on the same page.

Even though on an emotional level I am considering to just do a symbolic 1.5k contribution a month. That would be less than 5% allocation of my savings a month. All those uncertainties.

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

Nice discussion. I look at all my savings as one huge portfolio no matter where it is invested. Thus, I have both ratepension and aldersopsparing - as they, like mentioned above, have lower tax and are suited for investing in low cost etfs. @thedollar's nice calculation clearly shows the advantage even with similar interest rate; to this add the advantage of buying low cost etfs etc.

Why would it be important to you to have access to ALL your money all the time?

I don't see the relevance of withdrawing with penalty.

I plan to turn 100 so I see plenty of opportunities to spend my ratepension savings at a later date when no penalty applies.

When living off my investments before I get access to these retirement accounts, I'll just withdraw my annual 3-4% spendings of my total net worth from somewhere else in my portfolio. And as long as my total portfolio grows, I don't see a problem with spending some of my 'frie midler' principal along the way.

Rangle
Posts: 8
Joined: Mon Jan 09, 2017 5:24 am

Re: Living in Denmark: tips, challenges and questions

Post by Rangle »

Eureka wrote:Nice discussion. I look at all my savings as one huge portfolio no matter where it is invested. Thus, I have both ratepension and aldersopsparing - as they, like mentioned above, have lower tax and are suited for investing in low cost etfs. @thedollar's nice calculation clearly shows the advantage even with similar interest rate; to this add the advantage of buying low cost etfs etc.

Why would it be important to you to have access to ALL your money all the time?

I don't see the relevance of withdrawing with penalty.

I plan to turn 100 so I see plenty of opportunities to spend my ratepension savings at a later date when no penalty applies.

When living off my investments before I get access to these retirement accounts, I'll just withdraw my annual 3-4% spendings of my total net worth from somewhere else in my portfolio. And as long as my total portfolio grows, I don't see a problem with spending some of my 'frie midler' principal along the way.
Hello Eureka

I see your point. Must admit that I have no actual scenario in mind where withdrawal would be necessary. Though, I like the thought of being flexible and by definition binding your savings would not help me in that direction. But this is for scenarios I cannot predict. Like changes in taxation. Or the possibility to aqquire a business by selling ( :shock: ) stocks if the opportunity arrises.

It just seems that with a collective (overenskomstbestemt) pension at 17%, and max ratepension at 53k and max alderspension at 30k would bind too much of my savings. But then again, maybe that is the best idea. Alderspension not so much if (edit: taxation of) capital gains are reduced.

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

thedollar wrote: Bad:
- Have to wait until age 67-74
If you make your ratepension account now, you can start withdrawing from it when you turn 62 - also if the general retirement age (folkepensionsalder) increases at a later time. So if you don't have any ratepension account yet, I suggest you make one - even if you only deposit peanuts in it. Same goes for aldersopsparing. Better just make one.

I have a ratepension that I can withdraw from when I turn 60 as the rules were like that when I made the account.

Rangle
Posts: 8
Joined: Mon Jan 09, 2017 5:24 am

Re: Living in Denmark: tips, challenges and questions

Post by Rangle »

Eureka wrote:
thedollar wrote: Bad:
- Have to wait until age 67-74
If you make your ratepension account now, you can start withdrawing from it when you turn 62 - also if the general retirement age (folkepensionsalder) increases at a later time. So if you don't have any ratepension account yet, I suggest you make one - even if you only deposit peanuts in it. Same goes for aldersopsparing. Better just make one.

I have a ratepension that I can withdraw from when I turn 60 as the rules were like that when I made the account.
Is that so? From Forsikring Og pension
Personer født den 1.7.1960 og senere
Kapitalpension og aldersopsparing kan tidligst udbetales 5 år før folkepensionsalderen og senest 15 år efter pensionsudbetalingsalderen. Ratepension og livrenter kan tidligst begynde at blive udbetalt 5 år før folkepensionsalderen, og sidste rate skal senest udbetales 25 år efter pensionsudbetalingsalderen. Der er ingen seneste aldersgrænse for udbetaling af livrenter.
From nordnet
Pensionsalder er 67 år, medmindre andet er aftalt. Første rate af pensionsudbetalingen finder tidligst sted på det tidspunkt kunden når pensionsudbetalingsalderen, medmindre lavere aldersgrænse er godkendt af Skatterådet.
Seems that could easily be changed?

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

:oops: oops, you are right.

I fell into the trap of thinking that whatever applies to me applies to anybody else too.

From skat:
Hvis ratepensionen er oprettet før 1.maj 2007, kan pensionen udbetales ved det 60. år. Er ratepensionen oprettet efter 1. maj 2007, kan pensionen udbetales, når du har nået pensionsudbetalingsalderen
So unless you made your account 10 years ago maybe not so smart after all ...

thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

I've been doing some more math for us danes.

This time regarding the impact of the capital gain tax and its effect on time to retirement.

Blue line is for 0% tax (as used in the US).
Red line is for 100k annual spending after retiring.
Grey line is for 200k annual spending after retiring.
Yellow line is for 300k annual spending after retiring.

Image

So it seems that low spending and high savings rate is even more important in Denmark.

i.e. at a 50% savings rate:
0% tax: 16.6 years
100k spending: 20.0 years
200k spending: 21.9 years
300k spending: 22.4 years

Rangle
Posts: 8
Joined: Mon Jan 09, 2017 5:24 am

Re: Living in Denmark: tips, challenges and questions

Post by Rangle »

Very unfortunate I had a "kapital pension" account from before 2007 with a small amount invested which I sold. That meant the whole account was closed, and as such I apparently have no way to "restore" the account to benefit from the old rules :oops:

Guess I forgot to read the part in small print.

Rangle
Posts: 8
Joined: Mon Jan 09, 2017 5:24 am

Re: Living in Denmark: tips, challenges and questions

Post by Rangle »

By the way. Have you tried the "iværksætterkonto" as a savings / means to passive (bond) income? I can not quite figure out how big the implications would be on my personal finances with 50k a year and then at 67 yr figure out that it is not possible for me to figure out this entrepreneur thing. Thought it would be nice to have and if no brilliant idea came to the surface, they could be invested in rentals - but it seems that is not possible. What are your thoughts?

Rabie
Posts: 5
Joined: Fri Mar 24, 2017 2:59 pm

Re: Living in Denmark: tips, challenges and questions

Post by Rabie »

Hi,

Another Dane on the path to Fi :) Quick Intro: 28 year old male. Started full time work as a software engineer in 2014. Became aware (and to some extend obsessed by the idea) of ERE around June 2016. This is where I also started tracking expenses and cutting unhealthy expenditures. My savings rate for 2016 ended with 24% of my total income, and for 2017 I will most likely end at around 45% as I'm still being dragged by some of my bad decisions of the past. From there on my expenses are on track for a 60% rate, and this is without really feeling that I am depriving myself. Ironically I feel more liberated!

I have spent a bit of time trying to understand the danish tax system and discovered a strange special case with regards to capital gains. Suppose you have reached FI and thus have no other income except from capital gains from private funds invested in some danish mutual fond. The first 51.700kr earned will be taxed 27% (as of 2017). Anything above that is usually then taxed with 42% but since you don't have any other sources of income it seems that the first 38.444kr above the 27% tax boundary is tax free. Any kroner earned above 90.144kr (51.700+38.444) is then taxed 42%. This is quite significant for us trying to reach FI! :)

I used this site and downloaded the available spreadsheet:
https://tax.dk/beregn/skat17.htm
Last edited by Rabie on Sat Mar 25, 2017 5:18 am, edited 1 time in total.

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

Welcome Rabie, nice you found your way in here!

As for the weird tax rule, you mention, my gut feeling says that something is wrong with the calculator.

If you have only capital gains (kapitalindkomst), a common example is a child getting interest from a bank account, then you don't pay tax until you reach the free allowance of your personal income tax (bundfradrag). This will also apply to you if you invest in a mutual fund based on bonds and don't have any salary income. Then you will not pay tax of the first money you make (up to the free allowance).

The tax rates you mention (27% and 42%) do, however, relate to equity income (aktieskat). And this tax is kept completely separate from personal income tax and here there is no free allowance. Also not if you do not have any other income.

Or did I misunderstand you?

thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

Welcome @Rabie

You are right. I have plotted the effective tax rate when your only income is capital gains:

Image

Also, in this situation you will pay 352 kroner less in tax each year if you choose to be a member of the church and "pay" church tax. So weird.

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

Hi both of you,

What do you mean by "kapitalindkomst"/capital gain? You are taxed differently depending on whether the income is from stocks or bonds and interest and you need to keep those separate.

Also, why would you save money by paying church tax? Please do not refer to this random calculator, but to rules/regulations or talk me through the numbers.
Last edited by Eureka on Sun Mar 26, 2017 6:37 am, edited 1 time in total.

wizards
Posts: 122
Joined: Sun Mar 31, 2013 8:24 pm
Location: Denmark

Re: Living in Denmark: tips, challenges and questions

Post by wizards »

@thedollar - the chart looks like aktieindkomst...

@eureka - the reason for the church tax reduction is that you get the tax value of the basis deduction when you use this only for stock income taxed by 42%... So a person who only have stock income, will earn from being a church member... (Weird but true)

@Rabie - welcome :)

Rabie
Posts: 5
Joined: Fri Mar 24, 2017 2:59 pm

Re: Living in Denmark: tips, challenges and questions

Post by Rabie »

Sorry for the confusion Eureka. What I meant is that this applies to "aktieindkomst" and not to "kapitalindkomst" since as you correctly state, that would fall into a different taxation rule (the 37% on positive gains). I tried entering some of the same info as you see with the plot of thedollar into the official tax site (though this is for 2016) and got similar results. Note that for 2016 the 27% limit is 50.600kr.

https://www.tastselv.skat.dk/borger/ber ... filServlet

This is what Skat.dk says. For 50.600kr earned as "aktieindkomst" you pay 27% which is 13.662kr. So now any kroner you earn on top of the 50.600 should in theory get taxed 42%, but this is not what I get when I enter 70.000kr as "aktieindkomst". As you see the tax you have to pay is still 13.662kr. If you play for enough time with entering numbers into their (cumbersome) website, you will find the tax free limit before the 42% rule actually kicks in.

https://postimg.org/image/8wlmfgibn/

https://postimg.org/image/tribdzz35/

Rabie
Posts: 5
Joined: Fri Mar 24, 2017 2:59 pm

Re: Living in Denmark: tips, challenges and questions

Post by Rabie »

Thanks for the welcome (and quick replies!) :)

wizards
Posts: 122
Joined: Sun Mar 31, 2013 8:24 pm
Location: Denmark

Re: Living in Denmark: tips, challenges and questions

Post by wizards »

@Rabie - the reason for this is because you aren't using the basis deduction (personfradrag) to other type of income - try putting a salary of 50k or interest income of 45k and you will see the 42% tax right after 50,6k (2016 numbers)

Rabie
Posts: 5
Joined: Fri Mar 24, 2017 2:59 pm

Re: Living in Denmark: tips, challenges and questions

Post by Rabie »

This is what I suspect too based on playing with adding other types of income. I just find it strange/confusing that the deduction only kicks in when you get to the 42% tax limit. Not very intuitive rules, at least from my current perspective. But anyway, if this rule still applies in the future I can use this to either decease the risk of failure (depleting my funds) or retiring earlier than otherwise calculated. It would be nice to get some kind of professional approval of whether this rule applies or is just a mistake of some sort. Maybe I should give Skat a call.

wizards
Posts: 122
Joined: Sun Mar 31, 2013 8:24 pm
Location: Denmark

Re: Living in Denmark: tips, challenges and questions

Post by wizards »

It does applie. :)

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