Mandatory Expenses once FIREd


#1

Question:
let’s say I need 28.000 CHF a year to live. I accumulate 600k CHF, put everything in Dividend stock / fund / etf that pays 5%. I stop working so no income.
Will the dividends be taxed at 30%, or since I will have no income from work I will be taxed 4.73% (as from tax calculator for my Kanton for 30000 CHF income)?
Someone knows the answer?


Fun money: Is there a >5% high dividend indexfund?
#2

I think 4.73% but you’ll also be taxed on capital…


#3

You will get taxed according to you effective income, 4.73% in your example. Do not forget you have also to pay wealth tax and federal tax (very small for small income).
You also have to pay for the AHV according to your wealth. Maybe you forgot the most expensive taxation in your case, the compulsory health insurance.


#4

Also don’t forget, that if you put it into a US ETF, then you will also need to pay 15% withholding tax to USA.

Dividend income is taxable, so you need to pay income tax on it. Sale of ETFs is capital gains (or loss), not taxable. However if >50% of your income is from capital gains, then you’re a professional broker, so you pay tax also on this. That’s why, in order to save tax, you should obtain as much income from sales of ETFs, but not more than 50%.

Say what? You need to pay AHV if you’re unemployed? According to your wealth?! Can you point me to a calculator or some easy to understand text?


#5

So all FIREd persons pay taxes as professional brokers?


#6

Did you read all I wrote? Let’ say your portfolio is 1’000’000 and your annual expenses (E) are 3.6% (36’000). Let’s say your dividend (D) will pay 2% (20’000). You need to sell 1.6% (16’000) of your capital ( C ) to cover your expenses.

E = D + C

As long as D > C, you should be fine. If C > D, you might get classified as professional investor and also have to pay income tax on C. But that’s at the discretion of the tax office.


#7

You can have a look at this document.


#8

This is so dumb. So if I have 1’000’000, I have to pay them 2’000 CHF every year until I’m 65. And what do I get for this? Some laughable pension?

I’ve been trying to calculate what my total expenses in Switzerland would be after retirement.

  • Income tax canton Zurich: 500 CHF / year (based on 20’000 dividend income)
  • Wealth tax: 1’000 CHF (based of 1’000’000 wealth, not sure about this one)
  • Health insurance: 3’000 CHF (12 x 250)
  • OASI/AHV: 2’000 CHF (based of 1’000’000 wealth and 0 pension income)

Anything I’m missing?


#9

Probably food and rent, unless you plan to become a bum :slight_smile:


#10

Once you really start FI, you should document your experiences for the future generations (that is us). :wink:


#11

… Well FYI my plan would be to be "a citizen of the World :wink: ". Spend some time in Poland, in Spain etc, but maintain my domicile in Switzerland. I would spend some time in Switzerland, but only as much as needed. I was thinking about buying a flat with my 2nd and 3rd pillar + mortgage and the sublet it.


#12

Remember the profitability criteria the bank will require for mortgage. Your income must guarantee that 5% interest rates +1%/year amortization + “costs” will not exceed 35% of your income. Will the bank accept dividend income? Will you have to transfer them your net worth to guarantee collaterall? Best to have this answered beforehand.


#13

That is cosmopolitan bum. :joy:


#14

The amount was considering “minimum” lifestyle (rent, health insurance, food, 2300CHF per month).

My thinking was, dividends are more or less “sure”, or at least compared to capital gains.

I am really starting to think that more work --> more taxes. Once you have your basic covered with investments, I don’t see the necessity of working anymore. Or perhaps a super part time job that pays 30000 at year, working like 20%. I think that could also be great.

Since Countries like to eat so much money from us, we should take advantage of the lower taxed income. perhaps also working 4 months and doing nothing 8 months…


#15

That is a very good point that I actually didn’t consider. I was thinking I would just take the mortgage in the last year of work, but of course the bank will make periodic checks and if it sees that I no longer have a job, they might activate some clause that would allow them to break the contract and I would have to give them back the money.

The Tragbarkeit formula goes like this:

required income = (5% * loan_value + 1% * flat_value) * 3
For example (5%*400’000+1%*600’000)*3 = 78’000

Of course I don’t plan to generate that kind of income, even with dividends. Maybe they could take my ETFs as collateral, but probably not at 100% of value. And in the event of a hugh market crash, I could risk the situation where my ETFs would not be enough coverage and the bank could demand more collateral, which I wouldn’t have.

Well, maybe my plan with mortgage cannot work. I will have to check my options. Thanks for pointing this out.


Fun money: Is there a >5% high dividend indexfund?
#16

You may consider renting an apartment, and subletting everything except one room. My friend who lives abroad is doing something like that to keep his Zug domicile for tax benefits. He spends (formally) half of the year in South America, and the other half (formally) in his room.

PS. Julianek, probably fork. :slight_smile:


#17

That would be 4 (optimistically) to 7 (pessimistically) years :smiley: . End of 2025 I will have been 10 years in Switzerland and shortly before turning 40 yo.

Can you explain to me, how is that better that renting a room? Or even just being registered somewhere without a contract? I used to have a friend, who I just requested by the flat owner company to be registered at my place. They sent a document stating that he is registered at this address and that was enough for the Stadtbüro.


#18

I was subletting apartment for two years in Switzerland and the immigration office wasn’t happy about this. They only gave me permit B for one year because of that and they constant asked me when I’ll rent an apartment.


#19

So another option would be to “officially” have a joint rent contract (you + a friend). Then you both are responsible for paying the whole amount of the rent, and how much who pays is up to the two of you. That’s of course only an option for close friends, who trust each other enough.

Actually, my girlfriend has no rent contract. She is just angemeldet in the flat I rent. But she is Swiss, so I guess they can’t kick her out of the country :thinking:


#20

Why are you so fixed on Switzerland? There’s plenty of good countries to get FIREd