Hello from Europe

[sunflowergirl]

Hello,

I'm not sure this is the right way of starting my membership here but I'm actually looking for people from Europe, or a similar forum over there. I read a couple of books and dream about retiring early, but unfortunately most books seem to be written for the US market, and most things mentioned there don't work out for me. For example, with the current interest rates here I cannot get more than 4.7% annual interest on my savings without buying shares or fonds, and I don't know enough of that yet. Of these 4.7% max, a high percentage is deducted as tax. So basically I have quiet a nice sum on my savings account and no idea what to do with it . Well, that's me, doubting about my financial independence . Now, I continue reading here.

 

[FIREd]

Hello sunflowergirl,

First welcome to the board. I am a European citizen living in America so I have a pretty good knowledge of both systems. But I must ask, what part of Europe are you from to earn 4.7% on your savings? My savings account in Europe earns much less than that '(), more like 3.5%...
I think the first thing to do is start reading about investments available in your specific country. We have tax-sheltering investment vehicles here that are not available in many European countries, like 401Ks and IRAs. But in Europe, if you want to shelter some money from the tax man for example, insurance products seem to be very popular. Some savings vehicles are also tax free (so they tend to have relatively low capitalization limits). Read about stocks and funds and try to understand their tax benefits (if any). Real estate is also one of those investments that seem to enjoy a lot of tax advantages in many European countries.
Good luck and looking forward to your contribution to the board...

 

[lucija]

I second FIREdreamer's suggestion on real estate... if you can get into it.

It depends on where you are, but in my experience, investing in markets seems to be more streamlined in US (more options/less cost/ease of investing).

Welcome!

 

[sunflowergirl]

Hello Firedreamer,

and thanks for answering to my post
Well, I get the 'high' interest via something called Tagesgeld. I'm not quiet sure what it is in English, nor how it works. Basically, the banks offer relatively high interest, low service accounts and can lower the interests of those accounts whenever they like, which means that I'll look for a different bank with higher interest again and cancel that account. Funny that I don't find any wikipedia translations, and so far I only found banks in Luxemburg or Germany offering that - or I don't know for which name to search in my country

I'm currently living in the Netherlands but will pick up a job in Denmark soon, which will give me the opportunity to work all around the world. Which is nice, but makes buying property difficult. Also, as far as I understand, Denmark charges gigantic taxes over all types of interest income, which many Danes seem to prevent by again buying property . So all sorts of investments with a regular interest, which I could again reinvest don't seem to be an option. There goes my calculation of having saved enough money in about 15 years to retire, as that was basically based on reinvesting regular interest payments and all of my partners income. Maybe I can get some advice at that company once I work there.

Hello sunflowergirl,

First welcome to the board. I am a European citizen living in America so I have a pretty good knowledge of both systems. But I must ask, what part of Europe are you from to earn 4.7% on your savings? My savings account in Europe earns much less than that '(), more like 3.5%...
I think the first thing to do is start reading about investments available in your specific country. We have tax-sheltering investment vehicles here that are not available in many European countries, like 401Ks and IRAs. But in Europe, if you want to shelter some money from the tax man for example, insurance products seem to be very popular. Some savings vehicles are also tax free (so they tend to have relatively low capitalization limits). Read about stocks and funds and try to understand their tax benefits (if any). Real estate is also one of those investments that seem to enjoy a lot of tax advantages in many European countries.
Good luck and looking forward to your contribution to the board...

 

[Keopele]

SFG.... I am in the Netherlands (Zwolle) for a few months on assignment. This is my first time in Europe and I am feeling the dollar vs. euro impact on my personal expenses real fast! Luckily many others are expensed through work. LBYM seems to be common here though, i.e. small economical cars, LOTS of bike riding, smaller housing. etc. This forum is fabulous, so there are plenty of topics that apply to everyone. Definitely spend some time searching the forums history to start.

 

[FIREd]

Sunflowergirl,

unfortunately, most everything is taxed pretty heavily in Europe, investments included. I know, I cashed in one of my European account last year and after paying taxes on the interests, there wasn't much left. I had to pay both income and payroll taxes (social security) on the money. Maybe time to take a trip to Liechtenstein? I've heard it is one of the German's favorite weekend destination... Vaduz is beautiful in the spring I've heard (I do not condone tax evasion, no no no....). How are capital gains taxed in Denmark? Like any other income?

 

[Meadbh]

Greetings sunflowergirl!

I am Irish, live in Canada and maintain dual citizenship. I'm sure Ladelfina (an American living in Italy) will chime in anytime now.

This website is a good source of information on taxation of investments in Europe:
EUROPA - Taxation and Customs Union / Tax sites

Below is a link showing how dividends and "realized profits" (capital gains), are taxed in Denmark at 49 and 52% respectively (ouch) unless you are a pensioner.

Section 7: Shareholders

Yes, personal taxation is definitely more punitive than in North America in general and that is one reason why property is so popular. Further, my personal experience suggests that the investment process in Europe is not as transparent to the consumer as it is in north America. Financial statements are not as comprehensive, and the expectation that a financial advisor will "know your client" (and his/her risk profile) doesn't seem to be ingrained there. for example, on one occasion early in my investing career, I was sold an insurance policy when looking for a term deposit. (it all worked out just fine). On the other hand, I have found that European financial institutions are less likely to produce documentation for the tax authorities. That can be good or bad, depending on how you see things, but feigning ignorance has gotten people into trouble in the past.

I think your best approach is to begin with your bank's financial adviser and ask specifically about mutual funds, term deposits and bonds. The national banks all have the expertise and have a reputation to maintain. Shop around a bit until you are comfortable that you are well informed before making any major decisions. Always ask about fees as they may be exorbitant.

Do check out the recent (March 7) Consumer's Guide to Investing in Financial Products, published by the Committe of European Securities Regulators:

CESR [The Committee of European Securities Regulators]

I hope this is helpful! Welcome to the forum. Looking forward to hearing more about the Netherlands (which I love to visit) and Denmark (which I haven't been to).

Meadbh

 

[sunflowergirl]

SFG.... I am in the Netherlands (Zwolle) for a few months on assignment. This is my first time in Europe and I am feeling the dollar vs. euro impact on my personal expenses real fast! Luckily many others are expensed through work. LBYM seems to be common here though, i.e. small economical cars, LOTS of bike riding, smaller housing. etc. This forum is fabulous, so there are plenty of topics that apply to everyone. Definitely spend some time searching the forums history to start.

What does LBYM stand for? I think I never heard that. But yea, living smaller, having cars that don't use too much gasoline, using bikes... I never really think about it as a way of saving money but rather as 'normal', whereas I always wonder why some people at the other side of the Atlantic need huge pickup trucks or a gigantic villa What's wrong taking a bike or walking a few meters. No criticism, but I think it's just a completely different mentality.

Sunflowergirl,

unfortunately, most everything is taxed pretty heavily in Europe, investments included. I know, I cashed in one of my European account last year and after paying taxes on the interests, there wasn't much left. I had to pay both income and payroll taxes (social security) on the money. Maybe time to take a trip to Liechtenstein? I've heard it is one of the German's favorite weekend destination... Vaduz is beautiful in the spring I've heard (I do not condone tax evasion, no no no....). How are capital gains taxed in Denmark? Like any other income?

Yea, I know what you mean about not much left. I read somewhere that Finnish obligations have quiet a high interest rate but I haven't found out yet where to buy them. *books a flight to Liechtenstein*

From what I gathered so far it seems that Denmark is a nightmare taxwise. The maximum income tax is situated somewhere around 62% , and it's quiet easy to reach with a decent job. Interests or any money won from investments is appearantly added to the yearly income, which not only means high taxes but might also push you up a higher income tax group as far as I understand. On the other hand, salaries are amongst the highest in Europe.

Well, I'll continue reading here. It's a very interesting forum with lovely people

 

[chris2008]

Hi,
I am a german forum member. Even thought our situation at tax and retirement funds is different than for US citizens I find lots of great ideas here.
My approach: with so much of the gains eaten up by taxes I use all (reasonable) tax free vehicles that are available, and also concentrate on increasing and protecting my principle.
We hope to retire within the next 3 years (now age 49/56).
Take care,
Chris

 

[aida2003]

Wow, I'm so glad there are quite a few Europeans over here. I'm Lithuanian married to a German and both have been living in the US for 10 years now.

Yes, I know that Europe doesn't offer any enticing products for investing. Not long ago my DH's parents in Germany bought an apartment in a student town for renting. They've got another house they're renting. So, in my understanding, you either have enough money for real estate or buy insurance products that are very different from the US. If I understood correctly your earned interest income on CD's is not taxed until it hits xxx EUR. I cannot recall what's the limit of earned interest to be taxed, but that's what they told us.

LBYM means "Living Below Your Means". I think this term is still more applicable for Americans though it's changing in Europe step by step.

 

[Texas Proud]

I lived in London for a bit... and everybody was talking about their offshore accounts which were not taxed...

And the people who were not citizens were incorporated somehow which also reduced their taxes....

But for savings, look to your company and see if they have a savings scheme, from what I heard, most did...

You will need to invest in stocks if you wish your money to grow.... interest will not do it alone for most people...

 

[FIREd]

When I look at how members of my family in Europe were able to reach FIRE, I can see several paths:

For those living in Switzerland, they used mostly financial assets to do it (they use a wealth management service) because real estate is so expensive there.
For those outside of Switzerland (where taxes are higher), their primary source of income comes from real estate rentals (as described by aida2003). One of them though uses a mixture of annuities and stock market gains for income, but his income is so low (about 1,000 euros per month) that he is mostly exempt from income taxes, though not from social security taxes (he claims that he can live comfortably on 1,000 euros per month).

I think that in America you have 2 ways to reach FIRE: Save a lot of your income (that's what we call LBYM here) and/or invest your money in assets that will appreciate markedly over time (stocks, real estate, business). Because of relatively low taxes here, it is possible for us to keep in our pockets most of the gains realized in the stock market or in real estate (if you structure your investments properly, most gains in the stock market will be taxed at 15% max and a lot of the gains on real estate will not be taxed at all). In Europe, because of heavy taxation, I think that saving a lot of your income and sheltering it from taxes is much more important. Clearly there is little tax incentive in Europe to own stocks and bonds in a taxable account. So you have to find where the incentives are. And again, real estate is often your best bet for the largest tax breaks. But if for whatever reason you are not interested in real estate, then you have to find other types of investments offering tax breaks. For example, in my home country, there are a number of (government-sponsored) savings accounts that are tax exempt. You are limited in the amount of money you can invest in them and they usually pay a bit less interests, but if you pay high income taxes, it is definitely something you would want to use. We also have life insurance products that allow your money to grow tax free and that guarantee your capital. When you take the money out, you pay taxes only on the interests you've earned, but the amount of taxes you pay decreases the longer you wait before taking the money out (from 46% during the early years of the contracts down to about 19% after 8 years, including social security taxes - now that's a bargain in Europe!). Plus, if you die, your money is passed to your heirs mostly tax free. That's why life insurance contracts are so popular in Europe.

 

[aida2003]

For those living in Switzerland, they used mostly financial assets to do it (they use a wealth management service) because real estate is so expensive there.

Because of relatively low taxes here, it is possible for us to keep in our pockets most of the gains realized in the stock market or in real estate (if you structure your investments properly, most gains in the stock market will be taxed at 15% max and a lot of the gains on real estate will not be taxed at all).

Well, I am afraid that 15% tax on dividends and LT cap.gains will not last long here. The gov't is drowning in debts (=deficit), hence my scepticism.

Regarding using wealth management services in Europe, you really have to know where you're investing and its fees. Case in point: our in-laws don't send us presents or give presents to my DH's other two brothers. Instead they put the money in the bank. Actually it was 5 or 4 years that I heard from my DH of using bank savings. Fast forward to the beginning of this year... DH tells me that his mother transfered all accumulated gift money (ours and his brothers') into some funds managed by the bank. And they pay 3% management fee . My reaction? They should have left in CD's or savings instead. They never tell us how much BD, X'mas money we're given, and DH feels it would be rude to ask such a question, so we have no clue what amount my MIL is gambling with. DH tried to advise her it's not a good deal especially because the MIL even doesn't know what that money is invested in. She thinks there're bonds and stocks and on top of that she knows nothing how "the money pot" is performing. She vaguely mentioned that 'after the contract time is over', she'll transfer that money into cheaper funds (index??).
My MIL is very smart about house/apartment rentals, IMO because I have no knowledge about renting, and she's been good about savings/CD's, but she has no clue whatsover about other types of financial asset management. To me, it sounds that she's gambling .