On the impossibility to RE with capital

[oneev]

I try to make back-of-the-envelope calculations for an early retirement. My dream is to sail the world for a few years and then settle somewhere. Because of discovered health issues, I’m bound to a place that has a proper health system and insurance. Let’s take Switzerland. I wish I could stay here long-term.

Let’s take the following suppositions:

- less than 60, single, no real estate, capital 1.5 Mio,

- small AHV: missing 18 years of AHV if contributing till 65, so assume 10k/year AHV at best.

- living off capital till 65.

- 1.5 Mio including 2nd and 3rd pillars. (Need a strategy to withdraw them before 60)

With less than 60, I’ll have to pay AHV contributions based on capital and virtual income.

With this back-of-the-envelope calculation, I get the following incomes, taxes and available:

While it is possible to live with 45k in Appenzell, it’s not what I envision for retirement living with 33k in Vaud.

My take on this is that you need quite a bit more than 1.5 M capital and avoid the Romandie because of taxes.

So what are the possibilities?

• Live very frugally in CH

• ETFs with minimal dividends and avoid fixed income. Only growth ETF with low dividends (risky but reduces taxable income) and move out of romandie.

• Have a tax residency somewhere in Europe or the world where the tax and health system are okay and come back to CH regularly (would be nice to have a small flat to stay in and keep stuff in CH. But this costs).

• Sail the world 4-5 years (my goal) without tax residency (I guess it’s possible but difficult or impossible to keep a bank account and broker). 60k/year without tax is already a tight budget for this (plus a boat is expensive).

How would you go about it with 1.5M, low AHV, below 60, unfortunately two chronic health issues, and still goals to explore the world while I can.

(I put this in the taxes topic, but it’s not the only parameter)

[TeaGhost]

Wishing you all the best with your condition, I think that things can still work out well, under a few conditions. Namely:

• this may sound brutal but will your conditionds affect life expectancy? You could probably aim for a lower draw-down duration
• If you were Swiss, you could next to AHV as well count on Ergänzungsleistungen when very old. Clearly, its a tough call if you want to budget them in or not - but just saying
• Can you still work, if so take out a part time job that gets you beyond the min AHV Threshold, chances are that you won‘t need to pay these 4k per annum
• If you can’t work (no you don‘t want, you can’t), explore IV and your pension funds disability coverage?

Wishing you all the best. Remember that life and quality of life is not about wealth but connections and experiences. There are single people with less than 50k per annum that life a happy life. And if you can just avoid some cost, or tab on IV… you should be good…

[Your_Full_Name]

Probably not a useful comment for you, just expressing my reaction.

Sorry to hear about your health issues.

Otherwise: Whoah!

Wealth tax for Vevey/VD must be incredibly high. I’m guessing income tax (on your calculated 30k of dividend income) is about 10% or so (in Vevey/VD, with a negligible federal level income tax) and the rest of your 14.1k tax – let’s assume ~11k – is wealth tax for 1.5M for Vevey and VD?
Sounds incredible!

[cubanpete_the_swiss]

I retired with about that, it did grow most after retirement anyhow.

A few points:

You don’t say how much you have in 2nd and 3rd pillar. Anyhow, move it to Kanton Schwyz, then search residency in a no-tax country, I think Paraguay is very easy. Take out the 2nd and 3rd with minimum tax in Kanton Schwyz and no tax out of Switzerland.

You will not have to pay AHV contributions. You will not pay tax on AHV as it is not taxed in Switzerland nor in Paraguay (or whatever country you choose).

Then go travel.

You will lose health insurance in Switzerland, but there are other solutions, depending on your health. If you need the Swiss health insurance you need to keep your residence in Switzerland. However, you can return at any time, as I did.

[Ilixio]

A bit below 1% (~0.8% here) wealth tax sounds about right for VD/GE.

[PhilMongoose]

60 and single with no kids and 1.5m you are all set.

You don’t to live off the income, you can spend down the capital too. if you have 30 years of retirement 1500k/30 = 50k a year with zero returns/income.

With my drawdown calculator:

$ python drawdown.py 1500 30 4
Annual Drawdown Schedule:
----------------------------------------------------------------------
Year  Starting Balance     Withdrawal      Income          Ending Balance      
----------------------------------------------------------------------
1     $1,500              $85            $60            $1,474             
2     $1,474              $85            $58            $1,447             
3     $1,447              $85            $57            $1,419             
4     $1,419              $85            $56            $1,389             
5     $1,389              $85            $55            $1,359             
6     $1,359              $85            $54            $1,327             
7     $1,327              $85            $53            $1,295             
8     $1,295              $85            $51            $1,261             
9     $1,261              $85            $50            $1,225             
10    $1,225              $85            $49            $1,188             
11    $1,188              $85            $47            $1,150             
12    $1,150              $85            $46            $1,110             
13    $1,110              $85            $44            $1,068             
14    $1,068              $85            $42            $1,025             
15    $1,025              $85            $41            $980               
16    $980                $85            $39            $933               
17    $933                $85            $37            $885               
18    $885                $85            $35            $834               
19    $834                $85            $33            $782               
20    $782                $85            $31            $727               
21    $727                $85            $29            $670               
22    $670                $85            $26            $611               
23    $611                $85            $24            $550               
24    $550                $85            $22            $486               
25    $486                $85            $19            $419               
26    $419                $85            $16            $350               
27    $350                $85            $14            $278               
28    $278                $85            $11            $204               
29    $204                $85            $8             $126               
30    $126                $85            $5             $45                

----------------------------------------------------------------------
Monthly Withdrawal Amount: $7.161

[Moustachienne]

30 years, no inflation adjustments?

[weirded]

@PhilMongoose

60

He wrote “less than 60”

Obviously, how much below 60 would make a ton of difference

[Wolverine]

@oneev

it’s not what I envision

I think the problem is here. You may work on your expectations or you may work on the level of your assets. Either can lead you to an enjoyable early retirement. Failing both will lead you to a more frustrating future.

[PhilMongoose]

yes, i assumed 1 nanosecond less than 60, which is approximately 60

[oneev]

Thanks for the inputs.

I used https://swisstaxcalculator.estv.admin.ch/#/calculator/income-wealth-tax

To estimate the tax numbers. I had a small mistake for VD.

I’m almost 51 now with 530k, 60k, 370k for 2nd, 3rd, and broker, respectively. So shy of 1M.

I expect to reach 1.5M at 55-56 if I continue to save as of the last years.

For my recent health issues, I need medications that are costly. The suggestion of cubanpete_the_swiss to move to a low-cost country and pay little taxes is what I had in mind till recently. But I got a late diagnosis of aggressive multiple sclerosis on top of an older chronic, non-treatable issue. So while I somewhat recovered for now, I don’t know how long I’ll stay fit enough to travel and/ or sail. (8 months ago, I was rock climbing and running.) Also, I can get old with both issues, so I’m reluctant to have a strategy to consume my capital. At least at the beginning.

I still have time before taking the plunge, and I try to explore what are the possibilities to optimise taxes, residency, cantons, AHV. Also, I can buy up to 400k in my pension fund, so I try to add to it as much as I can, knowing I can’t add anything three years before withdrawing the capital.

Moving out of CH might still be the best way to cash out 2nd and 3rd pillars.

I realize I’ll have to work longer; I’m just afraid to end up barely able to walk when I’m 60 and then retire and not being able to do anything anymore. So I try to find out what are the possibilities.

[Wolverine]

If that means a deductible of 2.5k, you’re probably better off with the standard deductible of CHF 300 if you are likely to need more than 7.3k per year in care.

If some of the medication/treatments you have or will have to take are not reimbursed by the base health insurance, you need to account for those costs too (which I guess you have, I’m just putting it here for the sake of comprehensiveness).

@oneev

Moving out of CH might still be the best way to cash out 2nd and 3rd pillars.

Your current taxable assets can carry you for nearly 9 years of regular expenses if invested conservatively at your current expected budget. It should grow during the years that you need to reach 1.5M total assets. That should be enough to carry you to an age where you can withdraw 2nd and 3rd pillars for retirement.

I would not fret trying to withdraw them early, withdrawing them when available should be sufficient. I’d calculate how much I expect to need to be able to withdraw from them, have the conservative part of my allocation in taxable once I early retire in order to try and lessen drawdowns that may affect it and go from there.

[dbu]

@Wolverine

If that means a deductible of 2.5k, you’re probably better off with the standard deductible of CHF 300 if you are likely to need more than 7.3k per year in care

This.
If your “expected costs” are above ~1900 or so (*) per year, you should reduce the franchise to 300.

(*) IIRC. The crossing point might have changed over the years since my last calc.
And to be checked with your provider’s premiums-per-franchise.

[rho4]

Just some calculations (maybe with more mistakes). Assumptions: single, no kids, born 1974 (51 now), saving 5 more years to reach FIRE with 1.5 mio. at 56.

Maxed out health costs (including accident): premiums + 300 franchise + 700 selbstbehalt + 3.3 % yearly increase for 5 years:

Vevey: (12 * 570 + 300 + 700) * 1.033^5 = 9'221
Zug  : (12 * 335 + 300 + 700) * 1.033^5 = 5'904

AHV-payments: Should this not be 3’074? According to https://www.ahv-iv.ch/p/2.03.d, “Vermögenserträge” are explicitly listed as NOT part of “Renteneinkommen”.

Just as an idea, if you moved to S&P 500 ETF with trending towards 1.2 % dividends per year.

Income        : 18'000  (1.2 % of 1.5 mio.)
Taxable income:      0

I believe your taxable income should then be zero even in VD (ZG for sure), after deductions for health insurance premiums (~5k, code 300), AHV payments (~3k, code 640), asset managment cost (~2k, code 490), social deduction for rent (~6.7k, code 660) and even a deduction for ‘modest income’ (~1k, code 695).

Remaining wealth tax:

VD: 9-11k  (1.5 mio. at about 0.65%, varies by location)
ZG: ~2k?

My personal advice would be to do your traveling rather earlier than later. Because with bad health after 60 you only need a room, a balcony with a decent sunset view, plus TV+PC+internet. Should be possible even in VD.

[PhilMongoose]

With bad health issues, I’d consider retiring now and enjoying life while you still have some healthy years.

[Daniel]

@oneev

and still goals to explore the world while I can

I think you said it all right here. If your goal is to explore the world, go explore. When it comes to money, enough is never enough. Do what you dream of doing and let the chips fall where they may.

Unless you have people whom you want to leave an inheritance too, you could consider planning out your retirement savings only for the years in which you will be fit enough to really enjoy them. Up to age 75 or 80, for example. Maybe even younger, if health is poor. There is little point in having a lot of savings by the time you reach the age at which care is required, as the current Swiss system penalizes that.

Alternative: There are plenty of beautiful places in the world where you can live very well for the rest of your life with that money. Some of these have very favorable tax regimes for retirees (e.g. no wealth taxes, no or low taxes on pensions). The options narrow if you need specific medical facilities, but there are still a lot.

[TeaGhost]

@oneev

So while I somewhat recovered for now, I don’t know how long I’ll stay fit enough to travel and/ or sail. (8 months ago, I was rock climbing and running.)

I understand that MS comes in waves and the trajectory heavily depends. I know people that after the first wave pretty much managed to continue on a very slow regression path for centuries. Other people experience a decline that goes very fast and they end up in a difficult situation in 2-3 years already. But chances are that most people experience a relatively slow decline I understand (understanding may be wrong).

So therefore, and as I understand that this was relatively recent. I would heavily recommend to look left and right, but to not take any drastic decisions that limit your future options. Meaning, ensure you remain fully insured (Pension and IV/Disability Insurance) until you are fully clear on what trajectory you can expect - including potential from experimental paths like CAR-T treatment.

I can not imagine how the situation must feel for you right now, but I wish you all the strength to go through this journey until you get a clear view on what you can realistically expect from your body. Financially, I think you should be ok, the question now is realy what outlook you can expect and when to best plan in the exploring the world time. If you come to the conclusion that you would have another 20+ years of somewhat good mobility, the picture will clearly be different than if you think you need to front-load this mobility over the next 5-6 years already.

At the moment, I keep my fingers crossed that you can stick to your plan with traveling the world at 55-56, because financially I would have thought that this should somehow work out well for you. Under such scenario, I would probably recommend to keep a swiss domicile (for health insurance purposes) and to eat the bullet of keeping a (cheap) flat in Switzerland, Health Insurance and Taxes… because this will probably still come cheaper than the medication abroad. Under such scenario, it may be worth exploring a place that gives you a “tax address” whilst you were traveling the world. Meaning a friend or so that for 50 francs was willing to collect your letter and to on the paper host you on the sofa if needed. The cheaper the swiss domicile whilst travelling the world - the better.

One important thought, I think you should (once you are clear on your expected trajectory) plan for decent and long travelling the world with mobility. This community has the tendency of beeing very risk averse with regard to wealth planning. Just make sure that you don’t go over secure. You better have more time travelling the world, and then realize you probably need a bit more state support once you are no longer mobile - than to have a super great financial situation but you waited too long with travelling. This further implies - aim for citicenship before you start to travel. Developing a chronical ilness is outside of your control and this is what we have the social contract and community for. Clearly, don’t go bananas but it is absolutely ok if your plan foresees a modest contribution by the social welfare system, at least as a safety net in case the market turns difficult. No need to feel bad about that.

[ZHCycle]

I think the 2500 + 700 is worst case scenario though. Best case is 0 plus lowest premium.

[campFIRE]

@PhilMongoose

With bad health issues, I’d consider retiring now and enjoying life while you still have some healthy years.

But then what do you do when you are “poor” (or at least not FI), old and sick?

You try to go back to work?

WARNING: this is not OP situation, and I don’t wish this to anyone, ever.
It’s just a thought that I had as well: if and when I’m sick or I know that my time is limited to enjoy life I quit everything and only do what I love. But then?

[PhilMongoose]

@campFIRE

But then what do you do when you are “poor” (or at least not FI), old and sick?

Be glad you are alive and didn’t spend the last of your healthy years working instead of enjoying them while you could.