Influencing factors of the best country to accumulate FI money and RE?

[Bankai]

S/E Country
4,9 United States
4,3 Germany
4,0 Poland
.
.
.
3,0 United Kingdom
.
.
.

Let's examine the case of Poland. GUS (Central Statistical Office) reports 4473 PLN as the average gross income in Poland in September 2017 (or $1234 / €1058 / £935). However, these figures are:

1) Average (in case of Poland highly inflated by outliers working in few highly lucrative professions)

2) Only include companies employing 10 or more people (or 4.3% of all companies in Poland - yes, that's right, 95.7% of employers are not included in these figures; therefore they only include less than 60% of working population)

GUS also publishes mode (the most frequent) salary figures; the latest one I found (it's only published every 2 years) was 2469 PLN gross or 1786 PLN net a month (or $492 / €422 / £373).

Let's take Warsaw as an example (the city with by far the highest income in Poland). Average gross salary of 5699 PLN goes down to 4037 after tax. Average rent for a flat under 38 sq meters is 2142 PLN (if you want a flat 60-90 sq meters, be prepared to pay 4104 PLN a month, or more than your average wage). Based on my visit in Warsaw earlier this year, I estimate the cost of food to be roughly equal to that in the UK, so ~500 PLN a month. Therefore, with rent and food alone costing about 2/3 of net salary, I don't see Poland as a place where you can accumulate quickly. For comparison, living in the UK and making less than the average wage, I still save 50% more a month than an average person in Warsaw earns after tax. Yet, UK is below Poland on the list.

[Bankai]

Some other factors one might want to consider depending on the individual circumstances (in no particular order):

o Political stability

o Level of societal development (i.e. women equality, rights for minorities etc.)

o Attitude towards foreigners

o Crime levels

o Quality of food

o Cultural offer

o Climate

o Nature

o Quality of public services

o How hostile the bureaucracy is

o Tax laws

o How difficult is it to learn the language

o How many people speak your language

o Can you get a good job without speaking the local language

o How difficult is it to get into that country

o Impact of leaving family and friends behind on quality of life

o What the law allows/forbids

[wolf]

The challenge with creating an index like this is to find consistent data sources.

@jacob and fish:

• I tried to find data for poverty line in each country. I had no luck. So I used a pragmatic solution. I calculated the Poverty Line for each country based on data of "United States Department of Health and Human Services" Poverty in the United States adjusted with the "Comparative Price Levels". But I have to say that this approach is maybe uncertain/doubtful? Maybe others could verify those Poverty Lines?

• I changed the index to SR

@fish:

• the data for the "average household net-adjusted disposable income" is "per capita" OECD, but the description in the country page is not consistent with the description in the OECD database. So I didn't change it and used it again.

@bankai: I know there are many other aspects to consider. There are restrictions and personal considerations. My intention is not to create a "Ultimate FI/ERE Index" which has every espects. I am trying to find (relative) objective data to use in order to find out more about how easy/difficult it is to save money in a specific country. There are endless approaches and many models, etc. Data Sources are a constant challenge. This is some kind of prototyping and learning. I focus in this thread more on the financial aspects. I know that there are also ERE aspects to consider. But money, as a source of passive income cashflow is important to many of us here.

SR-Index v4

[jacob]

One way is to set the poverty line at 1/3 of the median income. That's usually pretty close.

Of course, you should also be using the median income instead of the average income. The US average income is almost TWICE as large as the median income.

But if you do that and combine it with the above, then FIRE becomes possible in any country by living slightly below the poverty line(*) but of course using the income in a frugal, DIY, web-of-goals, non-wasteful way in order to make the money stretch 2-4x farther. This is why I say that FIRE is much more person-specific than country-specific.

(*) Because your savings rate by construction gets north of 65% ...

[Fish]

I don’t think the “net-adjusted disposable income” is appropriate, because it includes a non-monetary component. It’s more of a quality of life measure rather than an income measure.

Net adjusted disposable income is obtained from the net disposable income of an institutional unit or sector by adding the value of the social transfers in kind receivable by that unit or sector and subtracting the value of the social transfers in kind payable by that unit or sector.

So suppose I earn $10, pay $2 in taxes, and receive $3 in social benefits (food stamps, healthcare, etc.). According to the above, my net-adjusted disposable income would be $11 (10-2+3) even though actual DI is $8 (10-2).

Edited to add: To get median wages, you could combine the OECD "nominal minimum wage" report with the "minimum wages relative to median wages" dataset. For example, the 2016 data for US is $15,080 for nominal minimum wage, and a mean-to-median ratio of 0.35. Then median can be computed as (15,080/0.35) = $43,086. However, it only contains data for 28 of the 35 countries in the OECD (Germany is not included) so it may be of limited usefulness. Both datasets are available on the following page: http://www.oecd-ilibrary.org/employment ... ar-data-en

Edit #2: Similar exercise, but comparing US states instead of countries: https://www.reddit.com/r/financialindep ... _for_fire/

Edit #3: Here’s a report that is attempting to construct something similar, but does not consider taxation: https://www.glassdoor.com/research/stud ... of-living/

[wolf]

@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

[pk+]

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

[Fish]

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.

[wolf]

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

[oldbeyond]

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).

[wolf]

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?

[wolf]

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%

[Fish]

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...