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30-year old German FI wannabe
Old 07-18-2012, 01:52 PM   #1
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30-year old German FI wannabe

Hello.

Long-time lurker, hit a milestone today and decided to celebrate by finally joining the forums. The bank transfer for my July salary arrived early, and it pushed my portfolio balance over the 100,000 Euro mark for the first time ever.

About me: I’m 30 years old, German, and have been living with the same girl for 11 years. We have a two-year-old daughter and a second child on the way. Not married yet, but that’s probably somewhere in our future. Huge baseball fan. My apologies for any grammatical errors or odd expressions, but English is not my first language.

I have a job at a megacorp that pays quite decently, and they treat me well. I can ride my bike to work, and there’s not too much business travel. The hours are usually reasonable. I have my own office and keep the meetings to a minimum. Coffee and water are free. My manager sits in another location.
Actually, 95+% of all people, especially at my age, would probably kill for this position. Still, I knew early on that I do not want to do this for the next 37 years (the regular retirement age in Germany is 67). And of course there’s no guarantee that things stay this rosy for the rest of my career. In fact, I would be surprised if that happened.

At this point in time, I believe I can achieve FI somewhere in my forties. My planning spreadsheet has best- and worst case-projections, as well as the “standard run” (I call it “Der Plan” ), and the FI age varies between 41 and 48. Maybe “worst case” is not actually the right word, as even this scenario assumes positive real investment returns on average, and doesn’t account for unemployment. If things turn out even worse over the next two decades, I guess I will just have to work longer to make it happen.

My main goal at the moment is to keep all my options open. I believe part-time work may be somewhere in my professional future, though this is still very uncommon for employees in managerial positions. Maybe that will change over time, as the supply of skilled labour will probably decline here in Germany because of the low birth rates since the 1960s. That should put me in a better position to negotiate.


Even if my plans do pan out, I don’t think I will actually retire in my forties, at least not completely. Most probably, I will wait at least until the kids are out of the house. And it wouldn’t do any harm to pad the stash a little more to ensure a healthy safety margin, and a WR significantly <4%.
The one thing I want to avoid is finding myself in a spot where I’m laid off at 50 because they deem me too old or too expensive by then, and facing a horrible job market for “older” people. If that should ever happen, I want to be able to grin broadly, take the severance package, and walk away.

About my investment philosophy, I’m with most of you guys here. I manage my finances myself and use low cost ETFs for the equity portion of my portfolio. I have read most of the books recommended here, and I hold a Master’s degree in Finance, so I understand quite well why index buy and hold investing is superior to actively managed funds. I’m still grateful to the professor who introduced us to “A random walk down Wall Street”. That was probably the most useful class I ever attended.
My target allocation is 60/40, but I include both my cash holdings and emergency fund in the 40% fixed income. At the moment I’m focussing mainly on accumulating more cash, because we plan to buy a house at some time in the next 1-5 years. Here in Germany, I can still get 1.75-2.25% interest on a cash account with funds that I can access daily, so I’m at least not losing ground against inflation (well, maybe a little after taxes, but I’m fine with that as long is the money is available when we stumble across the house we want).
We own the apartment we live in and are paying down the mortgage as quickly as possible – it will be gone in about 4 years. (In case you are wondering why we don’t just pay it off right now, loan contracts don’t work that way in Germany. We are allowed one additional annual payment of 5% of the initial balance towards the principal and have always maxed it out. Simply paying back the entire loan right away would result in penalties.)

Please let me express my gratitude for all the wonderful information shared here. Before finding this place (and also The Retire Early Homepage, and Early Retirement Extreme), I was just trotting along with the rest of the herd. I had always been a saver, but before learning about FIRE, I never really knew WHY. It just seemed like the right thing to stash away a big chunk of every paycheck, but now I have seen the light.

That being said, I’m sometimes missing a European, especially German, perspective. I understand that almost all of the forum members are US citizens, but if there was the odd German around here, too, I would be very interested to discuss some topics. Or maybe one or two of you have lived in Germany for some time?
For example, I understand that an IRA in the US may be a reasonable vehicle to save for retirement under certain conditions. That’s nice to know, but we don’t have these in Germany. So, is a ‘Riester-Rente’ a good tool for me, or should I rather consider maxing out my ‘Betriebliche Altersvorsorge’? Of course I have an opinion on that, but it would be nice to exchange thoughts with like-minded people.

Summing it up, I’m quite happy about where I am today, and looking forward to the journey ahead. Thanks for reading.
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Old 07-18-2012, 02:08 PM   #2
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Willkommen zu ER.org!

It sounds like "Der Plan" is well under way. Congratulations!

There are a few Europeans on the board, but most of us live in the US...
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Old 07-18-2012, 02:19 PM   #3
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Welcome aboard, RISP. Good luck with "Der Plan". BTW, your English is excellent.
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Old 07-18-2012, 02:49 PM   #4
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Welcome, RISP. As MichaelB noted, you have nothing to apologize for regarding your English, it's better than some natives I know .

Although we lived in Germany from 1995-1999, as an expatriate I dealt very minimally with the German financial industry (for example, we didn't even belong to a Krankenkasse - we paid cash for all medical expenses and were reimbursed by our USA insurance). So I'm afraid I won't be much help with your Germany-specific questions.
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Old 07-19-2012, 01:43 AM   #5
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Welcome, from another European.
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Old 07-19-2012, 02:06 AM   #6
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Welcome from another German. I am 54, looking to ER in 2013.
Health insurance (I have gone private) and mandatory retirement / social security schemes are very different in G - as well as 20-30 days of paid vacation.
However, investment planning, LBYM and the desire to be the master of our full day is universal.
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Old 07-19-2012, 02:33 AM   #7
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Thanks for the warm welcome, everybody.

@Chris: Right, 30 days of paid leave, and no requirement to use sick days if you're sick. For me, the biggest differences are taxes/social security contributions. Compared to Americans with a similar salary, our net income is of course WAY lower, but the difference between gross and net includes payments to the pension fund, and healthcare. I'm still in the public system because of the free insurance for the kids, and my fear of premiums in the private system going through the roof in the future.
May I ask how you plan to organize healthcare for the period from age 55 until you start drawing your pension? Will you just pay for it out of your own pocket?
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Old 07-19-2012, 03:18 AM   #8
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As I am privately insured I will keep this insurance as is.
I will just lose the company co-pay for the monthly fee.
DH is in public service, so when my income drops below 18.000 EUR/year he will become eligible for some subsidy for my healthcare that will reduce the premium of my insurance.
With kids and no parent in public service it makes sense to stay in the public system.
But I expect the whole healthcare system of G will change in future. So we have built in some safety margin into OUR PLAN.
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Old 07-19-2012, 04:00 AM   #9
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Quote:
But I expect the whole healthcare system of G will change in future.
Me too.
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So we have built in some safety margin into OUR PLAN.
That's always a good idea.
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With kids and no parent in public service it makes sense to stay in the public system.
Would you please elaborate on that? I understand the kids part, but why would my significant other's occupation influence my decision? She's a teacher, BTW, so she has to go private.
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Old 07-19-2012, 05:42 AM   #10
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As this is soooo Germany-specific I have PM'ed you.
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Old 07-19-2012, 05:54 AM   #11
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Good idea, thank you.
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Old 07-20-2012, 01:00 PM   #12
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Welcome to the forum from another European.

Since my DH is German, but we reside in the US, just for my curiosity I have a few questions to you about investing in Germany and more specifically taxable investing.
How do Germans invest beside CD's or saving accounts at the banks?
Are there index funds in Germany too? Mutual funds?
Can you open a taxable account directly with a mutual fund like here in the US (e.g.Vanguard, Fidelity, etc. etc.) or do you have to contact an intermediary like a German bank and increase investments costs on your part?
Are there American mutual funds (e.g. sold by Vanguard funds) in Germany or do Germans buy stocks in American companies and then have nightmares dealing with taxes due to investing in foreign countries/companies?

I know, these are probably stupid questions, but I'd like to get some basic understanding. My DH is not interested in that area, so he has not a clue. Once he mentioned that it's expensive to invest, expense ratio being north of 2% because an investor has to go through a bank to access mutual funds and stocks, that's all. My in-laws are from different generation who believe in real estate mostly and don't really trust banks after the global financial crisis began, and of course, don't even talk about American (banks, securities, funds or whatever)...unreliable kind of species
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Old 07-20-2012, 02:50 PM   #13
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Hi Aida, thanks for the welcome. There's no such thing as a stupid question.
Quote:
How do Germans invest beside CD's or saving accounts at the banks?
Are there index funds in Germany too? Mutual funds?
Yes, all that is available. I believe we can invest in just about anything that is available to you - options, derivatives, you name it. There are much less people in Germany who own stock, either directly or through mutual funds - only about 15% of the adult population. Most people just put their money in bank products that are either accessible daily ("Tagesgeld", yielding 0-2.25% at the moment), or similar to a CD ("Festgeld" - ATM you can get about 3.25% for a 5-year period). Those who do hold stock usually do so through managed mutual funds at outrageous fees. Stocks are considered "risky", and Germans in general hate risk. The most popular way to invest is through (I'm not making this up) - life insurance. In 2004, Germany had about 82 Mio. inhabitants, and 95 Mio. life insurance contracts.
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Can you open a taxable account directly with a mutual fund like here in the US (e.g.Vanguard, Fidelity, etc. etc.) or do you have to contact an intermediary like a German bank and increase investments costs on your part?
Hm, a quick Google search turned up a German Vanguard site, but it seems to be broken. Anybody that I know who owns stock does so through a broker. There are many discount brokers or online banks that offer depots cheap or free. I'm with .comdirect, the online branch of Commerzbank. My account is free if I meet at least one of several criteria - e.g., one trade per quarter, or one active stock savings plan. There are of course transaction fees if you buy or sell at a stock exchange, but they are not prohibitive. My bank charges 4,90€+0.25%, minimum 9,90€, maximum 59,90€. Because of that, most people try to buy in quantities of 1,000€ or bigger. If you invest regularly through a stock saving plan, it's 4,90€ max. And of yourse you are free to set up such a plan and cancel it after the first purchase.
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Are there American mutual funds (e.g. sold by Vanguard funds) in Germany?
A search for "Vanguard" in my account returns 135 hits, so yes, this seems to be the case.
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or do Germans buy stocks in American companies and then have nightmares dealing with taxes due to investing in foreign countries/companies?
That's certainly done, yes. Personally, I don't own US stocks directly, just through ETFs. Some of them are registered in Germany, one is in Luxembourg, but the tax treatment is not too complicated. Compared to declaring my income taxes, it's a walk in the park.
Quote:
Once he mentioned that it's expensive to invest, expense ratio being north of 2% because an investor has to go through a bank to access mutual funds and stocks, that's all.
Well, if you include the costs of buying and selling, 2% is not unrealistic. One more reason to buy and hold. Apart from that, the TER of the ETFs I own varies from 0.17% to 0.65%, the latter being an emerging markets fund.

Please let me know if you want to know anything else - I'm happy if I'm able to contribute something in exchange for all the knowledge I pulled out of this board.
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Old 07-23-2012, 02:55 PM   #14
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Thank you, Risp, you provided a good general view. I totally agree with you that Germans are not known for risk taking and sometimes it's not that bad. OTOH, responsibilty has a price, it's not fun to help big spenders later on.
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Old 07-25-2012, 03:34 AM   #15
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Welcome to the board!

I am a expat living in Germany. I was suprised to hear you owned ETF's and were German.. My German part of the family looks at me like I am crazy when I tell them I invest in stocks and mutual funds. My DW is German...way different way of thinking about money.
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Old 08-04-2012, 10:13 PM   #16
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The Riester Rente is an interesting concept. Would be a big plus for the US if we get squeezed. If we had something like that about 10 years ago, we wouldn't be sweating the US Postal Service. Sounds good to me. What age? or yrs. of service?

The last time I spent time with a German visitor, it seemed that work benefits, vacation... healthcare... safety nets... etc. were transferable and not dependent on current employment. A the same time, these benefits seemed to have an offset in very high taxes... (55% +?).... How do you get around this?

The other part that I wonder about, is the future effect of the EU problems.

Your young age should help in continuing your plans, since, your future growth should parallel the economy. (earning ability and long term outlook). This is the problem for us geezers, who have no way to recoup in a period of hyperinflation.

Discipline is important.
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Old 08-05-2012, 03:31 PM   #17
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The Riester Rente is an interesting concept.
Are you possibly referring to the regular, statutory "gesetzliche Rente"? The "Riester-Rente" ist just a privately financed add-on to compensate for recent cuts in pensions. It's still relatively new and does not provide large payments. I would agree that the statutory system where current workers pay what current retirees draw does have its benefits. At least that makes the system independent of the capital markets. OTOH, once the number of retirees gets bigger and bigger (think retiring boomers and increasing longevity) while the number of workers declines, you are in trouble.
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What age? or yrs. of service?
Regular retirement age in Germany is 65 at the moment, and it will gradually be raised to 67 over the next years. There's already talks about raising that to age 70, though. You can start payments earlier (60 now, 62 soon), but of course there is a penalty for that (3.6% per year). The vesting period is only 5 years, but the payments depend on what you paid in.
This is how it is calculated: The state takes a percentage of my earnings (currently 19.6%, shared by employee and employer), and in turn I earn "points". Currently you get one point at an annual gross salary of 30,268 EUR (that was the average salary in 2011). Less or more if you make less or more, respectively. At the moment, one point is worth 28.07 EUR of monthly rent, so if you work for 45 years and always make the average salary, you have earned 45 points, or 1,263.15 EUR per month.
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The last time I spent time with a German visitor, it seemed that work benefits, vacation... healthcare... safety nets... etc. were transferable and not dependent on current employment. A the same time, these benefits seemed to have an offset in very high taxes... (55% +?).... How do you get around this?
Well, most of the stuff you in the U.S. have linked to your employer is provided by the state. So yes, healthcare is easily "transferrable" - in fact, it is anyway independent from your current company. Vacation is not transferrable from one employer to the next, but the minimum is 20 days per year, and 30 days are standard. The marginal tax rate is 44.31% starting at an income level of only 52,882 EUR annually (to be precise, there is an additional 3% "rich tax" if you make more than 250,731 EUR). So yes, taxes and social security contributions are very high, but this is widely accepted. I personally feel we would do better with a little lower taxes and less regulation, but that's an unpopular position here in Germany.
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Your young age should help in continuing your plans
Very true. If we really run into trouble with the Euro or whatnot, it will set back my plans a lot, but I should be able to recover. I wouldn't want to be retired and dependent on investment income in such a worst-case scenario...
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2013 update
Old 12-19-2013, 09:42 AM   #18
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2013 update

As the year is coming to an end, I'm in a somewhat retrospective mood. Thought I'd list the ways in which my life changed in the last year; more for me than any reader, but maybe you find it interesting. So, this is my personal take on 2013:

- I'm no longer 30.
- We had our second child, a son. He's great.
- After all those years together, the GF DW and I finally got married. It's nice to have just one last name on the door.
- My father had another stroke. He fully recovered, but it made us all very aware that he's not going to be with us forever.
- Found the house we always wanted and bought it. Got a ridiculously low rate on the mortgage, partly because our families supported us with interest-free loans. We are working hard to repay those quickly.
- Savings took a hit because we wanted to borrow as little as possible, but that was always part of the plan. Also, we were forced to spend a boatload of money on real estate purchase tax, fees for the realtor and the certifying notary, a new kitchen and some renovations. Oh well. We are really happy with the place. It's in a nice neighbourhood, with good schools in walking distance. I believe it will be a fine place to raise our children, and we will most probably keep it for many years.
- My Red Sox won the World Series!
- I hit .523 this season and pitched two shutouts. No, not for the Red Sox.
- Survived *three* rounds of layoffs this year. The team is getting smaller and smaller, but the amount of work is not. I now have my 6th boss in 7 years.
- Fought tooth and nail for a raise, and finally got it yesterday. It's not the amount I wanted, but it's something, and it brings me one step closer to my goal.

It's been a good year, and I'm grateful. It's good to remember sometimes how well we are doing. I tend to forget this over all the small everyday hassles.

I hope you are all well, too, and I wish you and your families a Merry Christmas!
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Old 12-19-2013, 10:27 AM   #19
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Merry Christmas to you and family, too!
Enjoy life while you can.
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Old 12-19-2013, 09:50 PM   #20
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I am glad you are on this forum. Your perspective is both interesting and educational.
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