Finn's three year plan

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Finn
Posts: 34
Joined: Sat Jun 09, 2018 7:18 am

Re: Finn's three year plan

Post by Finn »

wolf wrote:
Tue Jun 26, 2018 10:43 am
Hi Finn. Regarding finances I am in a similar situation. I live in Germany and about 19% is going directly to my pension which I can access with 67yo (officialy). So I also calculate two SRs. SR1 is total savings from my gross income. SR2 is net savings from my net income. Well, I will try to become FI with my SR2 because it is a very long time till I can access my pension. And due to demographic influences and the possible pension crisis within the next few decades, I dont count too much on it. So I will try to play safe and count only on my SR2. Although I also calculate my SR1 and watch my pension growing from year to year. It depends on your level of risk awareness. How much do you tolerare risks regarding your future income from your SR1/SR2?
Hi wolf, thanks for stopping by! It sounds like we're exactly in the same boat. I agree that there is a major demographic risk within our lifetime, and as such, I think the pursuit of FI through personal investment is *necessary* for Gen X onward. There's a new thing in Finland where you can access your pension partially (50% minus 100e/mo) at age 61, no questions asked. Naturally this then reduces your eventual proper pension somewhat at retirement age. I think this is good compromise, since it's potentially beneficial for the national pension funds (people may end up getting less money overall) and it gives more options for people who have accumulated enough income producing assets themselves *or* have a need to avoid physically taxing work, like night shifts. If you want to die rich, you are probably better off working. However, my parents are *not* healthy at 70, so I really see the value in getting access to my funds during those extra, hopefully healthy, years. I hope that this option is still available in the 2040s :shock: when I turn 60, but I'm not counting on it: my FI number needs to be "enough". The trend seems to be towards more optionality, and I'm convinced that I should be well prepared in taking advantage of those options.

Regarding the risk and relationship between SR1 and SR2, I consider the pension to be bonus money that I could use to increase fun and comfort. In that sense, I am risk averse. I think the pension will be there in some form, but how much, I don't know. If SHTF and we lose the pension system (biiiig, big chunk of our national assets), I think only highly developed hunting, fishing and gardening skills will save me :D So that's not really a scenario that I think is likely in the space of three to five decades. I could be wrong, for many reasons.

I'm prepared to take some risk in my pursuit of FI (SR2). That's why real estate which is pretty heavily leveraged at the moment is the most important part of the equation. My spouse has a similar investment, so between the two of us, we have two rentals. These used to be our homes when we were single. By keeping these, we assume the risk of a leveraged investments which have not been selected on the basis of cashflow. As such, they only add to our equity. The positive side of those investments is threefold: the added equity is a good source of additional income, not having to reinvest that equity in a bull market, and avoiding property acquisition tax (2%) which we would have to pay if we wanted to take the equity and invest in a cashflowing rental (cheaper and nastier studio apt or the like). We find that our cozy 1BR apartments draw in great tenants that stay for a number of years. I'm ambivalent about getting a third rental, since we seem to be currently heading towards an RE bubble here in Finland due to creative financing/tax benefits that favor landlords. These days, everybody seems to have a leveraged rental property, which makes me feel a bit uneasy. That's why I'm currently interested in a stronger cash position, since that would put us in a much better place if the bubble bursts. Perhaps we could even buy cheap rentals when SHTF. I think if the bubble does burst and we get a national debt crisis, we will be in a much, much worse place than in 2008, since interest rates will likely just keep going up because the rest of the world doesn't care. Our rates are fixed, so we should be able to keep our rentals in that event. Our main risk is a technical risk (damage to properties).

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