Early Retirement Extreme Forums

@fish: I think the same, that “net-adjusted disposable income” is not appropriate. Yesterday evening another idea came to my mind. Recently I have researched the OECD tax wedges. And this morning I found something more appropriate in the OECD database looking in the "tax wedge section". I found the following data per country. I chose Single person at 100% average earnings, no child out of various other options.

Net income after taxex in USD using PPP exchange rates
total gross earnings before taxes in USD using PPP exchange rate
http://stats.oecd.org/Index.aspx?QueryId=55129#

But the problem with the equal Cost of Living still exists. I applied the poverty line for one person in the US. That should be the best fit for the net income of one single person. By using this and the Comparative Price Levels I calculated the CoL of each country. In my opinion it is not the best approach, but it is a baseline for comparisons between countries. Of course, there will be no difference in the ranking if I use 7000USD instead of the poverty line.

I think, that this is the last version of such a "index". If anyone knows better data for CoL in each country which is not deduced (I don't know if this is the correct verb), feel free to share.

Ok, here it is: SR-Index v5

It looks much better than index v1 (especially no values less than 1 )

I guess that Comparative Price Level contains gasoline and cars which should rather be excluded.
Similarly most other things like electronics and furniture are (so should be in our model) rarely bought.
Wearable things like non-high quality clothes, shoes, bikes etc, could be acquired at any price (some people call it livestyle).

So, most important things (and also biggest parts in typical budgets) are:
- food;
- shelter;
- heating and other utilities.
(Transportation was already excluded).

If you somehow manage to live almost for free in money terms (eg, by buying land in rural part of Macedonia, Albania or Bulgaria, heating negligible) then that kind of index has marginal utlilty for you

For others, some assumptions (like median income) are necessary.
I propose "rather healthy food from big store (like Lidl)" and "rather cheap but still not ugly" rental flat in 100k city.

Food prices varies perhaps in range 40% within any european country.
Rent rates grow rapidly when you move to bigger cities, but salary will grow even more then (in other case there is no point in moving). This make me feel that such index will make more sense for cities (eg Numbeo v2 but only with stats from frugal people).

Some rough numbers for sanity checks, based by countries which I visited:
food index:
4 - Greece, Germany, Nederlands, Italy
3 - USA
2 - Croatia
1 - Poland
0.75 - Bulgaria, Macedonia

I'm starting to think that due to the limitations of the data, it's best to just crowdsource quality data from those who actually know. And as Jacob observed, everything is likely to fall in the neighborhood of 66% due to construction... but the difference between 53% and 78% SR (the range of the v5 chart) is quite significant so I think it's worth the effort to verify if the numbers are correct.

For example, in my previous post I had used the OECD data to compute a US median full-time wage of $43,086. This passes the sniff test when compared with the US Census data (earlier result $47,338). SS/Medicare taxes are 7.65% or $3,296. Federal income tax for a single filer, no dependents is $4,445 based on a taxable income of $32,736 (= 43,086 - 6,300 - 4,050). Total taxes are 18.0%. The US federal poverty line is $11,880 for 1 person. Everything is done using 2016 data (income, taxes, poverty guidelines). Putting it all together:

SR (US, 2016) = S/(I - T) = (43,086 - (3,296 + 4,445) - 11,880)/(43,086 - (3,296 + 4,445)) = 66.3%

Now if we assume this person contributes $18,000 to a 401k and also makes a $5,500 deductible IRA contribution (double-dipping allowed at this level of income), federal taxes drop to $923 (based on a taxable income of $9,236 (= 43,086 - 6,300 - 4,050 - 18,000 - 5,500)). Because the expenses (poverty level) is about the same as the standard deduction and personal exemption combined, I reason that it's not necessary to account for future taxes in retirement when withdrawals on the 401k and IRA are counted as income. (It is assumed this hypothetical person also has the sense to 72t or Roth-convert to avoid the 10% early withdrawal penalty.) Recalculating everything:

SR (US, 2016, tax-optimized) = S/(I - T) = (43,086 - (3,296 + 923) - 11,880)/(43,086 - (3,296 + 923)) = 69.4%

Interestingly, the v5 spreadsheet also has the US with a saving rate of 69% since the net average income (using the OECD's methods) is similar to the net median full-time income (using a different OECD dataset, but with my methods).

If anyone wants to contribute similar informed numbers for their own country, please go ahead.

Verification for Germany
-average USD-EUR-exchange rate 1 USD = 0.904 EUR (2016)
-average gross income per person = 49156$ (2016)
-> net income after tax and after social security (with calculator) = 30121$
-> tax 39%
- poverty line = 13718$ (2015)
- Savings = net income - poverty line = 16403$
-> SR = savings / net income = 54%

comparsion to SR-index v5:
- a "Single person at 100% average earnings, no child" is not comparable to the average gross income per person
- the poverty line differs between the official German definition (60% of median income) and the USA poverty line 1 person calculated with Comparative Price Levels
- therefore the SR differs 54% vs. 74%

ergo: it is important to select wisely income data, e.g. median household income, average household income, median income per working person, .... But finding relevant comparable data for many countries is challenging. Still, I think one could compare countries in this FI/SR-context within a index, if the data basis is the same. I thought about use-case related indize (household, DINK, Single earner, family, ...), e.g. in my case I am highly interested in the SR-index v5, because nowadays I can identify/relate myself with "Single person at 100% average earnings, no child" the most. Understanding the differences is difficult, because one has to dive deep into the data sources, definitions and calculations to fully understand the differences to other SR-indexe. It is challenging, but I learned a lot and it was fun. And I think, there were some Lessons Learned along the way. If I trust in the latest SR-index v5, I gotta move to South Korea or at least to the Netherlands But first I gotta learn the language

For Sweden, the median full time wage is roughly 350k SEK, which becomes roughly 265k net of taxes(~25% tax rate). There's a concept called "existensminimum", which is what the welfare checks are based on, that is set att 48k + housing(not defined but probably roughly 48k, too) for a single person without dependents. That gives (265-96)/265=0.64=64% SR. (1 USD = 8.42 SEK as of today, so gross income is roughly 41.5k and net income 31.5k)

I think the biggest difference is hidden in these numbers. The wage structure is much more compressed in Europe(and especially in Scandinavia) and the marginal tax rate much higher(the highest marginal tax rate in Sweden is 55% on income more than ~2x median, but it's 50% already at income of more than 1.5 median). 100k software engineers are likely much better off in the US(they'd make less here and be taxed more), 40k generic office workers would likely benefit more from government health care + maternity leave + tuition free college(slightly lower income and higher taxes but much higher benefits).

I thought about it again. Another indicator for FI-achieveability could be the household saving rate.
The more a household is able to save the more likely it could achieve FI, maybe?

I got some links, if you are interested in household saving rates by country
https://www.gfmag.com/global-data/econo ... tes?page=2
https://data.oecd.org/chart/53zL
http://stats.oecd.org/Index.aspx?QueryId=51648#

What do you think about that indicator? Does it indicate, how easy it is financially to achieve FI in a country?

New (good) data is available. UBS, the Swiss bank, collected data this year and updated its "Price and Earnings" database for cities around the world. Basically it is about a cost of living comparison, but they also provide income data. All data points (many years and many cities) are available to download. You can also explore the data on their webpage and dig into it. If you are interested, here is the link: https://www.ubs.com/microsites/prices-earnings/en/.

Just for fun, I tried to set up a comparison between those cities regarding Savings Rate (USD and %). The analysis is based on the following factors:
- net income is calculated via the hourly net income and the work hours in New York (which are 2046 hours p.a.)
- expenses are calculated via the "Price Level including Rent" (New York is 100) and the USA poverty rate 2018 (which is 12140$ for 1 person according to wikipedia)
- Savings Rate $ = Net Income $ minus Expenses $
- Savings Rate % = Savings Rate $ divided by Net Income $

I gotta say that is it not 100% accurate, because you can't compare the cities (and countries) 100% regarding the net income. Countries have many different laws, e.g. in Germany health insurance is paid from gross income. In contrast to that, if I am not right please feel free to correct me, health insurance in the USA is paid from net income. However, the list can give an indicator.

The scenario would be, that one earns&saves in a city and becomes FI in that city. There could be further analysis done, e.g. to earn&save in city A and become FI (or retire) in city B.

There are some cities (on the bottom on the list), which have a negative SR. I think it is because in those cities they work more hours and/or the standard of living is not comparable. Maybe you have some other/further explanation for that.

If you are interested in the whole list, you can access it via this link: Google Spreadsheet: SR comparison cities 2018

Here you can find the Top19 (SR% >=70%)
Zurich-80%
Miami-78,5%
Los Angeles-78,2%
Luxembourg-77,6%
Geneva-77,2%
Toronto-75,8%
Frankfurt-75%
Munich-74,3%
Berlin-73,9%
Vienna-73,5%
Chicago-73,1%
Sydney-72,7%
Montreal-72,5%
Manama-72,1%
Dublin-70,9%
Nicosia-70,8%
New York-70,5%
Auckland-70,3%
Oslo-70%

I always find these types of posts interesting, thanks for the update wolf!

As you were already aware, you need to adjust the net hourly wages to account for the difference in # of working hours between locations. For most wealthy, industrialized nations, using NYC=2046 working hours will be within +/- 10% of actual, but there are some interesting outliers, e.g. Mumbai (3314.7 ) and Lagos (609.4).

For example: Zurich's net monthly wage is actually $30.92 * (1813.0/12) = $4,671.50 instead of the $5,272 computed in the spreadsheet. Using the correct number results in a savings rate of 77.4% instead of 80%. Once you make the corrections, Mumbai has roughly 0% savings rate and Lagos -200% . One possible interpretation is that NYC-poverty standard of living is barely attainable in Mumbai on an average wage, while it is downright impossible in Lagos. Naturally the next step is to use the poverty guidelines appropriate to each location, but that is another research project...