Another Hello from Germany

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Lenticularis
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Joined: Sun Aug 13, 2017 11:56 am

Another Hello from Germany

Post by Lenticularis » Mon Dec 18, 2017 5:40 pm

Hi,

Let's get right to it: I'm from Germany and would love to get to know like-minded people, preferably in real life, face to face. If you're interested in meeting some time (and place), please feel free to reach out.

Here's a some background. I'm a guy in my late 30s. I stumbled across FIRE half a year ago and started gravitating towards ERE few months later.

I consider myself lucky to be able to start the journey to ERE from a privileged position:
  • My upbringing was rather frugal.
  • I chose a well paying career that I even enjoyed for most of the ride.
  • I have figured out somewhat early in life that only the inflation part of lifestyle inflation is actually fun (hedonistic adaptation and all that jazz). I hence deliberately allowed for lifestyle inflation, but (luckily) limited the pace.
  • The net effect is that I sustained a healthy savings rate ever since I started working full-time - even despite having no particular financial goal.
  • I built modest competence in investing to find some purpose for the money I saved.
From an ERE point of view, however, my spending used to be highly inefficient and my "ERE competence" is lacking in several areas.

During the last six months, I largely revamped my value system. The rest feels like technicalities by comparison, albeit important ones. Most of them happen to still be in progress, like aggressively cutting my expenses, understanding the maths of FIRE (and relevant German law), as well as building competence in previously neglected areas. I also do not yet have a strong vision of what I want, but have managed to identify some key elements: health, autonomy, being with friends and family, being close to nature, having time by myself.
Another tricky question is figuring out how much inefficient spending I want to be able to finance from passive income or how much headroom I want to keep for big life changes.

It would be great to find people to discuss big questions as well as technicalities (including German particularities). But mostly I hope to enjoy a conversation (about ERE) without being considered rather (very) weird. ;-)

Greetings from Germany!

wolf
Posts: 588
Joined: Fri Jan 06, 2017 5:09 pm
Location: Germany

Re: Another Hello from Germany

Post by wolf » Tue Dec 19, 2017 12:48 am

Hi Lenticularis. Welcome to the ERE-forum! There are no weird discussions here. There is always an insight to the discussion. Great to have another German here, because there are not too many on this board sadly. Well, you are!

frommi
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Re: Another Hello from Germany

Post by frommi » Tue Dec 19, 2017 1:41 am

Welcome, where are you located in germany?

fips
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Re: Another Hello from Germany

Post by fips » Tue Dec 19, 2017 2:42 am

Lenticularis, welcome!

Happy to discuss any German particularities, of which there are plenty ;-)
What's your profession?

If more people are interested, we can arrange a meetup sometime.

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finity
Posts: 36
Joined: Wed Oct 11, 2017 4:11 pm
Location: Germany

Re: Another Hello from Germany

Post by finity » Tue Dec 19, 2017 4:29 am

German EREanism is growing strongly, welcome ;)
Maybe we need to open up a thread for all of our german specialities on how to best live the ere lifestyle and play the system (taxes, part time work, health insurance, days off, Kindergeld, Elternzeit etc). Maybe we will even add all of that content to the wiki :o 8-)

In terms of creating a german movement, I'm going to gift the ERE book on christmas to a few people :lol: Only very few, totally non-stupid people, of course. Most people have no idea of how little we spend/much we save compared to them [1] and - let's face it - they have no interest in ER, wouldn't grasp the concept at all and would think we are nuts, if we were to tell them. There are less than 5 people to whom I can talk about this.


[1] this shows our efficiency: If they don't notice us spending half of what they do, we are doing something right, don't we?

Poor Daniel
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Joined: Thu May 04, 2017 6:23 am

Re: Another Hello from Germany

Post by Poor Daniel » Tue Jan 09, 2018 11:09 am

Hi Lenticularis, great to hear from more people in Germany, I've lived there for a while too.
greetings from Vienna!

Lenticularis
Posts: 4
Joined: Sun Aug 13, 2017 11:56 am

Re: Another Hello from Germany

Post by Lenticularis » Fri Jan 12, 2018 5:05 pm

Thanks for the welcome! :-)

@MDFIRE2024:
That's why I'm here! I was refering to (weird) real life discussions with non-ERE minded people.

@frommi:
Location: somewhere in the middle of Germany.

@fips:
Profession: technology something.

@fips & finity:
I like the idea of collecting country specific information in a suitable place. Maybe you would like to set up a place? (I feel I'm too new here to choose wisely.)
I'll start with some content shortly (here).

@Poor Daniel:
In the context of this forum, Vienna feels near by. :-)
By the way, I've been there a couple of times and really liked it. What's the cost of living there (maybe rent in particular)?

@finity:
I really like your point of view: "This shows our efficiency: If they don't notice us spending half of what they do, we are doing something right, don't we?"
I do, however, believe that "they" tend to notice some aspects. Going car free, for instance, tends to stick out a lot, in particular in rural areas. Positive examples: (somewhat) minimalistic amount of stuff, frugally acquired, self-made food from economically sources ingredients, clothing in classic or generic style worn for many years, ...

Considering a meet-up:
Is anyone interested besides me and fips?
If so, where? Given that some of you seem to be located in the south of [Germany & Austria], maybe Munich or Passau could be suitable middle ground? Or somewhere in the Alps?

Lenticularis
Posts: 4
Joined: Sun Aug 13, 2017 11:56 am

Re: Another Hello from Germany

Post by Lenticularis » Fri Jan 12, 2018 5:19 pm

Here is my understanding of taxes, health insurance etc. Disclaimer: I'm not at all an expert on this matter. On the contrary, I'm asking for your insights to find flaws in my understanding.

1. Public health and care insurance.

Seems to be vastly different when being employed, self-employed, "officially unemployed" (Arbeitsamt / Hartz IV) or other. (Let's ignore private insurance, state employees and other special cases for now.)
  • Employed: fixed percentage of wage with upper limit. (Reduced percentage in case of wage ~450 to ~900 (??) per month. Not applicable below ~450 (?) per month. I.e. if one is willing to tolerate being employed at ~500 per month, health insurance can be below 50 a month.)
  • Self-employed: fixed percentage ~18% of ALL income (including capital income!) with a high minimum ~400 per month.
  • Officially umemployed: likely not relevant for ERE.
  • Other: similar to self-employed: ~18%, but the minimum is only 170 per month. (Can be zero in case of income below ~7k (?) per year with a publically insured spouse (Familienmitversicherung).)
Does this seem about right?

2. Taxes.

Let's focus on a single (everything seems to simple double for a married couple).
(Most) capital income (above 800 per year) seems to be taxed at a fixed percentage (Abgeltungssteuer). But in case regular tax rates are lower, those seem to apply (Antrag auf Günstigerprüfung). All income below ~10k (9k, +800 for capital income, +1k for wage income?) per year seems to be tax free (Grundfreibetrag). I hope (at least a major portion of) health insurance expenses may be deducted (Vorsorgeaufwendungen??), making ~12k (??) per year tax free (assuming 170 per month health insurance, see above). Above that, marginal tax rates seem to rise rather sharply with income.
Does this make sense or am I being to optimistic?

3. Public pension system (and unemployment insurance).

Currently this seems to be mandatory only for employees (and some special cases, of course). Let's hope it stays that way. (There seem to be on-going discussions to change this, which might mess quite a bit with FIRE / ERE finances.)

4. Put together.

As a simplified summary, in the ~9k to ~13k range (yearly total income), the sum of payment for income taxes, health insurance etc. should come out somewhere around 18% to 22% in typical cases (but can deviate by a lot, see above).

Let's assume a conservative safe withdrawl rate of 3.25% minus 0.15% fees. This means required investable net worth is 1/3.1%/(1-22%)=41 times yearly expenses (excluding health insurance) or a more memorable factor 500 times monthly expenses.

Want to have a self-employed side hustle? I guess one could still consider the factor 500 applicable by assigning the additional 230 Euro minimum monthly health insurance payment to that income. I suppose this makes sense in particular if that income is only assigned for optional fun expenses (travelling etc.).

I would greatly appreciate your opinion and corrections.

Bonus: tax advantaged retirement saving.

Riester, Rürup and deferred compensation (Entgeltumwandlung) all seem borderline pointless. Only very good offers (regarding fees and returns) seem to stand a chance to maybe offset the higher fees and lost flexibility (locked up money) by tax savings. The latter are tempting, the big picture doesn't seem to be, however.
Do you agree?
Last edited by Lenticularis on Sat Jan 13, 2018 8:40 am, edited 1 time in total.

wolf
Posts: 588
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Location: Germany

Re: Another Hello from Germany

Post by wolf » Sat Jan 13, 2018 7:27 am

1. Public health and care insurance: I think so too.
2. Taxes: yes, it seems correct. health insurance expenses can be deducted 100%.
3. Public pension system (and unemployment insurance): I think so too.
4. Put together: depends highly on future SWR(all factors need to be considerd, such as Asset Allocation, portfolio net returns, PE-valuation, retirement withdrawal strategy, income taxes on investments, risk aversion, inflation, currency risks (Währungsrisiko der ETFs/Aktien/Anleihen), portfolio depletion or preservation, sequence-of-returns-risk, first 10-15 years of "retirement", change in cost of living...)
...and the changes in upcoming laws and regulations, when you retire.

Thank you for this summary!

Lenticularis
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Joined: Sun Aug 13, 2017 11:56 am

Re: Another Hello from Germany

Post by Lenticularis » Sat Jan 13, 2018 8:38 am

2. Isn't deduction of health insurance expenses limited? Seems to be 1900 per year if employed and 2800 if self-employed (and other??) based on a quick internet search. Should be fine (or close enough) at 170 expense per month, but relevant at 400.

4. I agree, the SWR is a complex beast in detail. Thinking in terms of SWR after fees, but before taxes, public health insurance, etc., the country specific aspect is getting from that to net income. As the former is covered extensively in the FIRE community, I focussed on the latter.

Given all this uncertainty (generic and country specific), I'm considering to
  • only cover essential spending by passive income,
  • assume a conservative SWR (e.g. 3.1% after fees),
  • and plan to have additional income for at least a couple of years after leaving the 9-to-5.
Partial retirement if you will, which seems to be what everyone (who blogs about it - selection bias?) ends up doing anyway.

I envision the following benefits:
  • Able to retire from 9-to-5 earlier.
  • Get better understanding of where my expenses will settle in "retirement".
  • Increased flexibility to address sequence of returns risk - given that the first 10-15 years are crucial. Kind of a variable withdrawal rate strategy mitigated by other income.
Any additional income should be optional (with at least 90% probability). I.e. something along the lines of "Want an expensive hobby? Go make some money!" plus risk mitigation (sequence of returns risk, change in regulations, unexpected change in essential spending).

chiliehead
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Joined: Wed Jan 24, 2018 5:03 pm
Location: Germany

Re: Another Hello from Germany

Post by chiliehead » Sat Jan 27, 2018 9:55 am

Hey everyone, short time lurker here (introduction will follow). Had this answer typed out already, botched it :cry: and now I´ll just type out an abbreviated version, just ask if you want more details. I´m aspiring to become a tax consultant in a few years (~3) so I know a little bit about this topic.

Read along fellow Germans, run away bored everyone else:

All numbers are € if they are no percentage of sth. SHI = Social/Statutory Health Insurance, PHI = Private Health Insurance (in Germany there´s a distinction made between "Gesetzliche Krankenkassen" (Social (and mostly mandatory) Health Insurance and "Private Krankenversicherung" (Private Health Insurance), companies running as a business).

In Germany´s social security system there are lot´s of thresholds, limits etc. e.g. I´ll refer to "Jahresarbeitsentgeltgrenze" (JAEG aka "Versicherungspflichtgrenze" -> limit for mandatory insurance in social security and
"Beitragsbemessungsgrenze/BBMG" (social security contribution assessment ceiling), also raised every year -> if you have to pay x% of your income for Social Security, then after the ceiling of y you only pay x%*y even if you earn more than y.

If you pay for SHI you also pay for social nursing care insurance, if you have PHI you still pay it, but the premium is different. You pay ~8.5/1.5% of your salary, your employer 7.3/1.275 for SHI/Nursing

Also this is mostly an approach for Singles and DINKs, considering kids make this more complex than necessary.

1. Public health and care insurance and social security in general

You are right in general. From an ERE perspective, there are 4 approaches to HI.

a) Do the normal thing and don´t stop working as an employee. Find something you enjoy doing and do it for example as a 450€-Job aka Minijob (marginal" part time job). You pay almost nothing for Social Security and stay insured in SHI and also in Social Retirement Insurance and the income ist tax free. You also can use tax free salary components for boosting this advantage.

This is a viable option in ERE, because you don´t leave the system entirely and remain flexible in the future. Of course you have to find some work you like doing.

b) Voluntary member of SHI: If you earn more than 60k (-> JAEG, raised every year) you can decide to stay in SHI. Monthly Premium: 700 (BBMG of 4425*15.6%) for SHI and 124 for nursing. Premium as an employee 372 and 68, employer pays the rest.

If you have no employer but your own business (or do nothing and live just from investments etc) you can make the same decision. Your monthly premium: ~18% of your total income (from business, investments, rent etc), but limited by BBMG. Also there can be quite some hassle from your insurance.

c) Familienmitversicherung (spousal co-insurance)

Marry. Have a spouse who is in either a) or b). Stop working yourself. Earn less than 435 a month. If you earn more, you have to insure yourself and either b) or d) applies.

d) PHI

If you are above JAEG or are not employed you can opt to insure yourself via PHI. The ERE approach would be to find stable company with stable and slow raises in premium. Get a flexible contract with a low deductible (tax reasons, also your employer pays half your premium up to 323/54 a month (-> BBMG in SHI/Nursing). This tariff should include "Krankentagegeldversicherung" (coverage for sick leave) and "Beitragsentlastung im Alter" (reduced principal at retirement age) and an option to change it to "Zusatzversicherung" (supplementary insurance).

When you quit your high paying job to do whatever, raise the deductible to (very) high (tax reasons; the lower your income, the higher your deductible). This will cost you somewhere around 400 to 800 a month if you pay it all yourself. If you´re unemployed, you might consider drropping the "Krankentagegeld", but that´s a complex decision. Why opt for PHI? Arguably better treating standards, would cost you extra if you are in SHI. Benefits for being sick less often, only visiting doctors in emergencies or for preventive examinations and for living healthily. Saving money with high deductibles. But this is a different decision for everyone, according to your circumstances of life.

Important: If you are no member of Social Retirement Insurance, some stuff like rehabilitation treatment ("Reha", "Kur") is not covered by SHI and not necessarily by PHI.

2. Taxes

Also quite right. The higher the difference in personal income of each spouse, the higher the tax benefits. The opposite also applies: if both earn the same, benefits are (close to) zero. But factoring in other aspects, married with prenup is preferable to unmarried LTR.

Grundfreibetrag is at 9000 in 2018, rising a little each year. Investments get another free 801. The rest is either taxed with 25% (+Soli +church tax) or with your personal tax rate, whichever results in less tax.

"Vorsorgeaufwendungen" are capped at 1900 (or 2800 if you don´t have an employer paying part of your insurance), BUT HI and Nursing can always be fully deducted (minus what you pay for "Krankentagegeld"). Also, by being in PHI, you have the possibillity to save around 500 to 1000 a year if you manage all your insurance payments efficiently.

Something worth considering is the "Spardosen-GmbH" (piggy bank Ltd) if you have more than ~150k in stocks, options and bonds. you can also employ yourself, so you would legally be an employee. Very good if you also want start your own business (but beware of insolvency; minimize risks with legal planning).

If you have a close and trusted friend and you both want to live in a house: A buys the house B wants to live in and vice versa. Now B pays rent to A and vice versa. Great way of saving taxes, espacially in employment phase, you can even deduct visits to each other. Needs loads of trust though.

3. Public pension system (and unemployment insurance)

Yeah, doesn´t really apply for ERE/FIRE. But having some years in the pension system might hedge you against political risks. The rest is mentioned under 1. Special cases, as always, if you are no member in SHI but in a semi-privatized alternative ("Versorgungswerke" e.g. for lawyers, tax advisers, doctors).

4. Put together & bonus

Depending on your income and insurance, taxes should be from 0 to 15% in full ERE mode. Problem: Withholding tax is mostly 15%, you can use them to lower to income tax you have to pay, but depending on the taxes you pay, not everything will be reimbursed. Also depending on whether your broker is located inside of Germany or not, your cash flow from investments is lowered and only 75-85%.

Challenges for ERE in Germany: Complex rules for every possible situation, but the system is tailored to the work ´til 67 crowd*. Investing has no real lobby** and so you run into additional challenges. So you often are the odd one out and minimizing trouble by working a couple of hours and having a business as side hustle is almost a must. This could very well result in one more year syndrome.

You can be FIRE with 300 to 400k, but if you don´t lower your expenses massively, you still gotta earn something on your side. OTOH you are in no need for 40h/week.

*Riester/Rürup/Entgeltumwandlung/Social Security is all aimed at this majority
*take Riester/Rürup/Entgeltumwandlung again: Inflexible, lost upon death, high fees, low return. Except from special cases you would be better off buying Shares of Allianz SE than buying their Riester-Insurance. But grant your employees some investments in the stock market? Nigh impossible :roll:

I know this is really long, but the previous version was full of Paragraphs/articles, 5th grade Math and more detailed :D

Also I don´t want to spam links, but the most relevant to this thread: https://der-privatier.com/ for tales of bureaucratic hurdles of retiring early and https://www.finanzwesir.com/autonome-zellen for possible meet-ups of all kind of people with an interest in finance. Also I´m located somewhere between Regensburg (worth a visit for tourists) and Ingolstadt, anybody close?

wolf
Posts: 588
Joined: Fri Jan 06, 2017 5:09 pm
Location: Germany

Re: Another Hello from Germany

Post by wolf » Sat Jan 27, 2018 10:10 am

chiliehead wrote:
Sat Jan 27, 2018 9:55 am
Hey everyone, short time lurker here (introduction will follow).
...
Grundfreibetrag is at 9000 in 2018, rising a little each year. Investments get another free 801. The rest is either taxed with 25% (+Soli +church tax) or with your personal tax rate, whichever results in less tax.
...
Depending on your income and insurance, taxes should be from 0 to 15% in full ERE mode.
...
You can be FIRE with 300 to 400k, but if you don´t lower your expenses massively, you still gotta earn something on your side. OTOH you are in no need for 40h/week.
Hi chiliehead and welcome! You know, you could have opened a new thread as your introduction?
However, thank you for the very good summary about Germany specifics. You could provide those information for the ERE-wiki, if you'd like to?
I am also from Germany and I currently aim for the quotes above, as you have written about them.
Wish you a good start here posting!

chiliehead
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Joined: Wed Jan 24, 2018 5:03 pm
Location: Germany

Re: Another Hello from Germany

Post by chiliehead » Sat Jan 27, 2018 10:19 am

As I said, Introduction Post will follow, but I thought posting here would reach at least some Germans. If anybody has more questions I think a new thread would be good idea, collecting a Q&A until I come around to the wiki (good idea btw, wouldn´t have thought about it myself)

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finity
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Location: Germany

Re: Another Hello from Germany

Post by finity » Sun Jan 28, 2018 2:34 am

Hi chiliehead,

I've already started a rough first outline for ERE in Germany. Feel free to add, edit or delete whatever parts you like to ;)
https://wiki.earlyretirementextreme.com ... In_Germany

Dodo
Posts: 4
Joined: Sat Jan 06, 2018 4:01 am

Re: Another Hello from Germany

Post by Dodo » Sun Feb 25, 2018 6:22 am

Hej Chiliehead,

thank you for your summary. Glad to see quiet a few fellow countrymen, this helps relieve this sense of surreality surrounding the whole endeavour.
Allow me to induce an addendum regarding the "Spardosen GmbH": As far as my understanding goes, this specific tax-optimization vehicle was targeted by two changes in legislation and hence lost most of its appeal.
The first one occured around 2013, when the formerly very low taxation of dividends from Streubesitzbeteiligungen (Stocks etc.) that was the consequence of certain tax-exemptions from the so called Körperschaftssteuer (corporate tax) were expunged, which resulted in a significantly higher taxation for dividends further on.
Second change came due by 01. January of 2018 and affected the Veräußerungsgewinne (Capital gains) from such investments, which in turn are now subject to the full standard rate of the corporate tax (zzgl. Soli).
Depending on your personal tax level this might still lead to a slight reduction from the regular investment tax (Abgeltungssteuer: 25 % + Soli), in case of "extreme" frugality this also might be higher than your personal maximal tax level (Grenzsteuersatz).

In comparison to the situation in the US it appears to me, that a average personal in Germany does have very little instruments at its disposal of legally and significantly diminishing the tax burden.
If any of you has other usefull information about tax-optimization for those of us employed regularly and not owning a private company or real estate i would be curious to hear about it.

Thanks and cheers,

D.

P.S.: I used to live close to Regensburg at the shores of the Donau not long ago and really loved the city, it is beautiful and especially in the evenings in the later year, when the cold winter's nights drive people to seek refuge in the warm embraces of their homes, the streets lie empty and the ghostly fog, rising from the sleepily mumbling river, wanders aimlessly through the narrow alleys of the medieaval city the place transforms into some enchanted place from a fantasy novel.

wolf
Posts: 588
Joined: Fri Jan 06, 2017 5:09 pm
Location: Germany

Re: Another Hello from Germany

Post by wolf » Sat May 26, 2018 12:00 pm

Lenticularis wrote:
Mon Dec 18, 2017 5:40 pm
From an ERE point of view, however, my spending used to be highly inefficient and my "ERE competence" is lacking in several areas.
Hi Lenticularis. "Wie geht's?" Have you improved your ERE competence in some areas? Would be great to hear from you as a fellow German! :)

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